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THE  CONTROL  OF  TRUSTS 


'J^^y^ 


THE  MACMILLAN  COMPANY 

NBW  YORK  •    BOSTON  •   CHICAGO 
DALLAS   •    SAN   FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON  •    BOMBAY  •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


THE 
CONTROL  OF  TRUSTS 


BY 

JOHN  BATES  CLARK 

AND 

JOHN  MAURICE  CLARK 


REWRITTEN  AND  ENLARGED 


N^m  fork 

THE  MACMILLAN   COMPANY 

1914 

All  rights  reserved 


,-^1"" 


G^ 


COPYWGHT,   IQOI,    1912, 

By  THE  MACMILLAN  COMPANY 

Set  up  and  electrotyped.    Published  September,  191a. 
Reprinted  April,  19x4. 


£)<Yi7i  ^co^V/l' 


■oort  ■ 


PREFACE 

This  small  work  has  incorporated  into  itself  one  that 
is  older  and  still  smaller.  It  is  a  joint  production,  in 
that  one  of  its  two  authors  has  contributed  the  earlier 
work,  the  other  has  contributed  most  of  the  new  mate- 
rial, and  both  have  participated  in  the  revisions  de- 
manded by  rapid  and  recent  changes  in  the  business 


world. 


Qu^ 


tr^^ 


The  purpose  of  the  work  is  entirely  constructive, 
since  it  advocates  a  positive  policy  for  controlling 
trusts.  It  aims  to  show  that  certain  measures  having 
this  end  in  view  are  in  harmony  with  modern  tenden- 
cies and  are  well  within  the  power  of  the  legislator  and 
the  executive  official,  and  that  they  give  promise  of  en- 
suring what  the  public  needs,  namely  protection  against 
abnormal  prices,  continued  increase  in  production  and 
improvement  in  the  conditions  of  labor. 

Most  of  the  measures  proposed  for  the  regulation  of 
trusts  fall  into  one  or  the  other  of  two  classes,  of  which 
the  first  consists  of  those  which  would  merely  destroy 


3S?79S 


VI  PREFACE 

monopoly  and  make  competition  free,  while  the  other 
includes  measures  that  would  relinquish  such  attempts, 
surrender  to  the  principle  of  monopoly  and  protect  the 
public  by  regulating  prices  through  official  bodies.  This 
plan  means  trying  to  do  in  industry  what  we  have  par- 
tially succeeded  in  doing  in  transportation. 

This  book  advocates  a  third  course;  namely,  regu- 
lating competition.  It  would  cut  off  entirely  an  ab- 
normal type  of  it  by  forbidding  and  repressing  the  cut- 
throat operations  by  which  the  trusts  often  crush  their 
rivals.  Further,  it  would  remove  the  special  induce- 
ment to  such  measures  and  thus  create  a  condition  in 
which  competition  of  a  tolerant  kind  would  rule  business 
life.  It  gives  reasons  for  believing  that  this  result  can 
be  reached  with  no  disruption  of  the  business  system. 

When  the  first  edition  of  this  work  was  issued,  so 
called  potential  competition  had  shown  its  power  to  con- 
trol prices.  Whenever  mills  in  a  combination  had  raised 
their  prices  greatly,  they  had  caused  new  mills  to  be 
built,  and  the  fear  of  further  cases  of  this  kind  was  hold- 
ing prices  within  bounds.  The  limits  thus  estabhshed 
were  not  rigid,  but  elastic,  and  the  companies  soon  dis- 
covered their  own  power  to  crush  audacious  rivals 


PREFACE  VU 

when  they  appeared.  In  a  number  of  ways,  which  are 
now  well  known  and  are  discussed  in  this  volume, 
they  could  club  a  competitor  whenever  he  should  show 
himself  in  an  active  way.  They  so  often  did  this  that 
their  evident  power  to  do  it  had  its  effect  in  advance, 
and  deterred  competitors  from  appearing.  The  po- 
tentiality of  unfair  attacks  by  the  trust  tended  to 
destroy  the  potentiality  of  competition.  Under  these 
conditions  it  was  and  is  clearly  necessary  to  disarm 
the  trusts — to  deprive  them  of  the  special  weapons 
with  which  they  deal  their  unfair  blows.  It  is  neces- 
sary to  repress  the  specific  practices  referred  to  and  so 
to  enable  every  competitor  who,  by  reason  of  productive 
efficiency,  has  a  right  to  stay  in  the  field,  to  retain  his 
place  and  render  his  service  to  the  public. 

Twenty  years  ago  even  this  enforcing  of  rules  of  the 
ring  seemed  radical  to  many  persons.  It  now  seems  to 
be  more  nearly  a  matter  of  course  and  an  obvious  be- 
ginning of  a  consistent  policy  in  dealing  with  great  com- 
binations. It  is  an  encouraging  fact  that  the  adopting 
and  ampKfying  of  this  policy  is  quite  generally  de- 
manded and  that  various  laws  for  this  purpose  have 
been  proposed.    It  is  desirable  to  test  provisions  from 


VIU  PREFACE 

various  bills  that  have  the  attention  of  the  country 
by  comparison  with  economic  principles  and  recent 
business  developments.  As  between  a  few  leading 
plans,  based  on  continued  competition,  the  differences 
are  secondary;  while  between  all  plans  of  this  class  and 
those  based  on  the  surrender  of  competition  and  the  ac- 
ceptance of  monopoly,  the  difference  is  world-wide. 
The  practical  effects  of  the  two  classes  of  plans  would 
differ  as  widely  as  an  industrial  system  instinct  with 
the  principle  of  progress  would  differ  from  one  in  which 
that  vital  force  should  be  stifled.  The  plan  hereadj;^ 
vocated  has  more  in  view  than  merely  meeting  an  ex- 
igency and  correcting  overcharges  for  goods  produced 
by  monopolistic  companies.  It  aims  primarily  at  se-  / 
curing  a  continual  increase  in  the  power  of  production,  • 
a  perpetual  enlargement  of  the  social  income,  and  a 
capacity  to  pay  constantly  rising  wages  without  trench- 
ing on  the  legitimate  gains  of  capital.  It  aims  to  make 
a  broad  demarcation  between  capital  that  is  honest  and 
independent  and  that  which  is  monopolistic,  though  in 
the  former  class  it  includes  much  productive  wealth 
held  by  great  corporations.  In  the  effort  to  repress 
monopoly  the  whole  of  the  fund  of  honest  capital  is 


V 


PREFACE  IX 

the  natural  ally  of  honest  labor,  organized  or  unor- 
ganized. In  the  adjustment  of  wages,  employer  and  em- 
ployed always  have  their  differing  interests,  but  there 
is,  in  this,  no  necessity  for  enmity  or  destructive  con- 
flict. The  line  across  which,  in  the  field  of  economics, 
a  great  moral  battle  is  now  waging  is  the  one  which 
separates  the  powers  which  make  for  the  welfare  of 
society  from  those  which  prey  upon  it. 

Even  here,  however,  the  true  plan  of  action  is  not  to 
destroy  offenders  but  to  reform  them  and  make  them 
to  be  nolens  volens  the  servants  of  society.  It  is  to 
make  honesty  to  be  the  only  practicable  policy  on  the 
part  of  great  corporations. 


CONTENTS 

PAGE 

I    The  People  and  the  Problem i 

II    Combination  Versus  Monopoly 31 

III  How  Not  to  Deal  With  Trusts 50 

IV  Monopolies  and  the  Law 71 

V    Monopolies  and  the  Law — Destructive  Competition  96 

VI    What  More  is  Needed 128 

VII    Constructive  Competition 140 

VIII    Conclusion  and  Summary 187 


:;^>-- 


THE  CONTROL  OF  TRUSTS 
CHAPTER  I 

THE  PEOPLE  AND  THE  PROBLEM 

A  difficult  alternative — Are  we  following  economic  laws? — Can  we 
avoid  the  dangers  of  cut-throat  competition? — The  advantage  of 
free  land — When  it  is  gone,  technical  improvements  must  make 
good  the  loss,  or  economic  disaster  will  result — ^The  danger  that 
monopoly  will  check  present  progress  a  graver  peril  than  the  mere 
effect  on  prices — Popular  judgment  of  the  trusts  depends  on 
whether  they  prove  to  be  real  monopolies — All  classes  oppose 
monopoly  save  monopolists  and  socialists — Centralization  with- 
out monopoly  would  be  an  ideal  outcome,  but  positive  action  is 
needed  to  secure  it — The  power  of  "potential  competition" — 
The  need  of  protecting  it  so  as  to  strengthen  this  natural  check 
on  monopoly  power. 

Of  the  practical  problems  which  the  American 
people  have  now  to  solve,  the  greatest  is  that  of  the  con- 
trol of  vast  corporations.  Have  the  trusts  come  to  stay; 
and  if  so,  will  they  put  an  end  to  independent  produc- 
tion? Will  the  smaller  establishment  be  generally 
driven  from  the  field  and  new  ones,  great  and  small, 


2A*.  I*'^?.**^,'  ikk  GdKTaOL  OF  TRUSTS 

be  kept  out  of  it?  If  so,  we  shall  have  either  to  let  the 
monster-like  corporations  have  full  possession  of  many 
departments  of  industry  or  turn  over  these  depart- 
ments to  the  State.  It  is  a  choice  between  the  devil  of 
private  monopoly  and  the  deep  sea  of  state  socialism; 
and  with  the  alternative  in  this  shape,  many  a  reason- 
able man  will  be  ready  to  take  his  chance  under  so  much 
of  socialism  as  nationalizing  these  industries  involves. 
Meanwhile  our  law  calls  for  something  which  is 
neither  private  monopoly  nor  nationalization.  What 
.  the  Sherman  Anti-trust  Law  demands  is  that  com- 
petition shall  continue,  and  we  have  to  find  out  whether 
it  can  do  so.  The  whole  momentous  problem  of  dealing 
with  trusts  hinges  on  whether  economic  law  will  permit 
this  federal  statute  to  accomplish  what  is  intended. 
Does  the  civil  law  have  economic  law  on  its  side,  or  does 
it  not?  If  it  does,  we  can  avoid  revolutionary  changes 
of  any  kind.  We  can  remove  the  greatest  evils  from 
our  business  system,  we  can  preserve  the  productive 
power  which  in  various  ways  we  have  gained  and,  what 
is  most  important  of  all,  we  can  keep  alive  the  principle 
of  progress.  While  removing  oppressions  and  injustices, 
we  can  ensure  the  continuance  of  the  mechanical  in- 


f     THE  PEOPLE  AND  THE .  PROBLEM  !  ••".  ;  •;  ;  /  -3 

ventions,  the  chemical  discoveries,  and  the  various  other 
technical  gains  that  have  caused  each  year  of  the  past 
century  to  make  its  addition  to  our  power  over  nature 
and  so  to  afford  the  first  condition  of  increasing  returns 
for  labor.  It  cannot  be  said  too  early  or  too  emphati- 
cally that  the  supreme  test  of  measures  for  regulating " 
trusts  is  that  which  tells  us  whether  they  will  accelerate 
technical  progress  or  retard  it — whether  they  will  make 
the  world  as  a  whole  grow  richer  or  poorer,  and  so  better 
able  or  less  able  to  afford  good  pay  to  its  workers. 

We  know  to-day  that  we  ^n ;. dissolve  the  trusts — 
that  we  can  break  up  the  big  corporations  into  smaller 
ones — and  this  is  distinctly  more  than  we  once  knew. 
We  had  supposed  that  the  Sherman  Anti-trust  Law 
would  be  enforced  only  s^radically,  and  that  while 
a  few  suits  at  law  were  dragging  their  slow  length  along, 
all  the  trusts,  scarcely  excepting  those  immediately 
affected,  would  be  having  their  own  way.  That,  in 
effect  was  what  actually  happened.  Moreover,  we  had 
not  a  settled  conviction  that  multiplying  and  expedit- 
ing the  suits  was  desirable.  It  might  do  a  balance  of 
harm.  In  the  first  place,  breaking  up  too  many  cor- 
porations at  once  would  be  highly  disturbing  in  the 


4  THE  CONTROL  OF  TRUSTS 

realm  of  business;  and  in  the  second  place,  it  would  lead 
to  results  that  were  not  at  all  certain  to  be  good.  Would 
the  smaller  corporations  created  by  dividing  the  larger 
ones  renew  at  once  the  cut-throat  competition  which  ex- 
isted before  the  combinations  were  formed?  The 
general  belief  is  that  price  warfare  of  a  ruinous  sort  was 
almost  unavoidable.  It  once  prevailed,  and  the  com- 
binations offered  a  way  of  deliverance  which,  at  first, 
was  not  altogether  unwelcome,  even  to  the  public.  So 
long  as  mere  pools  or  contracts  to  control  price^were 
depended  on  they  were  not  as  menacing  as  ^^^pkter 
forms  of  union  became;  and  they  did  at  least  allay  a 
warfare  that  involved  much  evil.  In  doing  this  they 
made  their  contribution  to  general  prosperity,  and  the 
modest  price  of  this  was  something  to  which  the  public 
reconciled  itself,  though  it  did  not  make  the  payment 
altogether  willingly.  It  was  the  appearance  of  con- 
solidations that  were  firmer  and  more  complete  that 
caused  the  menacing  shadow  of  general  monopoly  to 
deepen. 

What  will  happen  if  we  decide  that  the  trusts  are 
monopolies  and  proceed  to  break  them  up?  Can  any- 
thing happen,  if  that  is  done,  but  a  repetition  of  the 


THE  PEOPLE  AND  THE  PROBLEM         5 

former  experience — cut-throat  competition,  ruinous 
losses,  followed  either  by  bankruptcies  or  by  secret 
agreements  which  may  put  an  end  to  the  war?  More- 
over, if  the  government  were  relentless  in  its  continued 
pursuit  of  combinations  and  were  able  to  set  up  an  in- 
quisition that  would  detect  and  break  up  the  secret 
agreements,  would  there  then  be  any  escape  from  a 
further  price  warfare  that  would  spell  ruin  for  many  of 
those  engaged?  Can  anything  else  result  from  com- 
petition between  powerful  rivals,  left  without  check  or 
hindrance?  In  short,  shall  we  have  again  the  anarchic 
struggle  of  recent  and  unhappy  memory — a  thing  which, 
to  many  minds,  seems  almost  as  bad  as  monopoly  it- 
self? Yet  for  that  genuine  article — for  what  may  ac- 
curately be  described  as  complete  private  monopoly — 
there  are  no  good  words  to  be  said:  the  public  antip- 
athy for  it  is  fully  justified.  However  unsuccessful 
our  law  may  be  in  breaking  it  up,  the  tenacity  with 
which  the  people  hold  to  that  law  indicates  a  perfectly 
sound  instinct,  and  we  are  led  to  the  conclusion  that  a 
thing  unendurably  bad  appears  to  have  become  almost 
a  necessity.  If  there  is  no  escape  from  the  ruinous 
competition  except  by  combination,  a  referendum  as 


6  THE  CONTROL  OF  TRUSTS 

to  which  of  the  two  we  shall  have  would  at  least  bring 

out  a  strong  vote  in  favor  of  the  combination. 

/    In  advance  of  the  argument  on  this  point,  we  may  say 

/  that  there  can  be  great  consolidation  without  monop- 

j  oly,  and  also  that  there  can  be  competition  between 

I  powerful  producers,  that  does  not  run  into  ruinous  war- 

j 

i  fare.  We  can  let  some  trusts  continue  without  suffer- 
ing because  of  their  presence,  and  we  can  break  up  some 
trusts  and  still,  in  all  probability,  avoid  the  old  anarchic 
kind  of  competition.  Our  choice  is  between  what  looks 
like  a  devil  and  what  looks  like  a  deep  sea,  but  neither 
of  them  is  actually  what  it  seems;  or  at  the  worst, 
the  devil  can  be  exorcised  and  the  sea  safely  navigated. 
The  great  corporations,  which  have  made  all  the  trouble, 
can  be  rendered  not  merely  tolerable  but,  if  we  can  be- 
lieve it,  even  beneficent. 

C Great  general  prosperity  has  certainly  come  under  a 
jime  of  consolidation.  This  single  fact  carries  on  its 
face  an  evidence  that  the  unions  we  have  had  have  not 
been  complete  monopolies,  for  in  that  case  they  would 
have  been  hostile  to  general  prosperity.  For  a  long  time 
almost  all  kinds  of  business  have  been  profitable  and 
the  employment  of  labor  has,  in  the  main,  been  steadier 


THE  PEOPLE  AND  THE  PROBLEM         7 

than  it  was  during  the  previous  period.  For  twenty 
years,  agriculture  has  been  "booming."  For  the  two 
decades  before  the  year  1891,  farmers  were  in  a  de- 
pressed state,  while  for  the  two  decades  since  1891  they 
have  been  growing  better  and  better  off.  Moreover, 
this  prosperity  has  followed  the  loss  of  an  old  and  princi- 
pal source  of  wealth.  Through  our  entire  history  Amer- 
ica has  made  its  principal  gain  by  continually  extend- 
ing its  settlements  and  occupying,  every  year,  a  new 
area  of  fertile  land.  There  were  farms  for  us  all,  if  we 
chose  to  take  them;  and  if  we  did  not  seriously  think 
that  that  would  be  true  to  the  end  of  time,  we  did  ex- 
pect it  to  continue  as  long  a  time  as  we  cared  to  look 
forward  to.  Each  year  our  people  occupied  and  brought 
into  a  state  of  production  a  new  zone  of  agricultural 
land.  They  built  villages  and  cities  and  saw  them  grow 
with  gourd-like  rapidity.  Occupying  land,  tilKng  it  and 
creating  industries  on  parts  of  it,  imparted  value  to  the 
land  itself;  and  this  value,  the  so-called  "unearned  im- 
crement,"  was  nowhere  monopolized,  but  diffused  it- 
self throughout  the  community.  The  man  who  bought 
and  sold  land  received  some  of  it,  and  men  who  refrained 
from  doing  this  did  so  because  their  earnings,  in  their 


8  THE  CONTROL  OF  TRUSTS 

several  occupations,  were  such  that  they  preferred  to 
remain  in  them.  Great  returns  came  from  all  pro- 
ductive employments,  and  the  scale  of  production  and 
of  the  total  returns  from  it  became  greater  and  greater 
as  the  occupied  area  became  larger  and  larger. 

Toward  the  close  of  the  last  century  not  a  few  men 
looked  with  some  anxiety  toward  the  time  when  this 
territorial  expansion  should  cease.  They  had  learned 
that  the  public  lands  were  not  inexhaustible;  and  at 
the  beginning  of  the  twentieth  century  they  knew  at 
last  that  the  available  supply  of  good  land  within  the 
limits  of  the  United  States  was  practically  exhausted. 
There  were  ways  of  somewhat  increasing  it,  by  irriga- 
tion and  otherwise,  but  the  day  was  past  when  a  quarter- 
section  of  rich  prairie  land  could  be  had  for  the  asking. 
Beyond  the  Canadian  border  the  expansion  was  still 
going  on  at  a  rapid  rate,  but  it  afforded  no  such  outlet 
for  American  labor  as  was  available  so  long  as  the  front- 
ier of  settlement  was  marching  steadily  westward  and 
north-westward  through  the  great  valley  of  the  Mis- 
sissippi. Our  citizens  can  redeem  land  that  is  too  dry, 
too  wet  or  too  rocky;  they  can  develop  mineral  re- 
sources; they  can  begin  to  reforest  the  mountains,  and 


THE  PEOPLE  AND  THE  PROBLEM         9 

they  can  migrate  to  Canada;  but  that  is  not  comparable 
to  what  they  could  do  when  "prairie  schooners, "  by  the 
myriads,  were  every  spring  carrying  our  empire  farther 
and  farther  toward  the  west.  With  this  movement  at 
an  end,  what  could  happen  but  the  beginning  of  con- 
gestion? How  could  we  avoid  "diminishing  returns" 
in  agriculture  and,  from  indirect  causes,  in  manufacture 
and  in  commerce?    Yet  the  period  since  1891  has  been 

anything  but  one  of  impoverishment;  and  it  is  no  un- 

■  .  .  .  ^ 

J  certain  guess  which  assigns  a  reason  for  this  general 
prosperity.  It  has  been  due  to  two  causes,  acting  to- 
gether; and  both  of  them  must  continue  to  act,  if  we 
are  destined  to  escape  disaster.  The  firstis_production 
on  a  vast-scale,  carrying  with  it  a  correspondingincrease 
of  ^efficiency;  and  the  second  is  improvement  in  pro- 
ductive method — the  brilliant  succession  of  mechanical 
inventions  and  other  devices  which,  in  every  field  of 
industry,  have  accomplished  again  and  again  what  is 
called  "making  two  blades  of  grass  grow  where  one  grew 
before."  In  manufacture,  in  transporting,  and  in  agri- 
culture itself,  we  have  multiplied  and  again  multiplied  by 
a  surprisingly  large  factor  the  product  of  human  labor. 
Technical    improvement    is    simply    indispensable. 


lO  THE   CONTROL  OF  TRUSTS 

Without  it,  and  with  our  increasing  population,  life  on 
our  planet  would  be  unendurable.  Stop  the  succession 
of  inventions  that  add  to  our  power  over  nature  and  you 
will  bring  labor  soon  to  a  starvation  limit.  Merely 
check  the  rapidity  of  this  technical  progress  and  you  will 
cause  grievous  hardship.  Given  more  and  more  millions 
of  people  to  be  maintained,  and  no  technical  better- 
ments, and  you  have  world-crowding  going  on  until 
it  reaches  the  fixed  barrier  of  starvation  itself.  The 
ultimate  limit  on  the  congestion  will  be  set  by  the  cruel 
checks  on  the  growth  of  population  which  the  Malthu- 
sian  studies  describe.  When  we  pass  the  starvation 
point,  the  mortaHty  and  the  diminished  birth  rate  may 
afford  some  relief  for  those  who  survive;  but  this  means 
that  the  "iron  law  of  wages"  will  operate  in  full  rigor. 
Though  the  earnings  of  labor  cannot  long  be  less  than 
what  is  necessary  to  keep  the  men  alive,  they  cannot 
under  such  conditions  long  be  very  much  greater. 

Against  all  this,  our  first  resource  has  been  the  seem- 
ingly endless  amount  of  new  land  ready  for  occupa-  J) 
tion,  and  the  second  our  inventive  genius,  which  has 
given  us  not  only  machinery  for  tilling  land,  but  count- 
less devices  for  transforming  raw  materials  into  finished 


THE  PEOPLE  AND  THE  PROBLEM         II 

goods  and  carrying  them  everywhere  at  a  minimum  cost. 
I  From  prehistoric  times,  humanity  has  depended  upon 
i  improvements  in  production,  not  only  for  means  of 
living  comfortably,  but  for  means  of  Hving  at  all.  After 
rude  hunting  tribes  had  become  large  enough  to  exhaust 
the  game  supply,  they  were  forced  to  fight  each  other 
for  available  hunting  grounds.  The  breeding  of  cattle 
and  sheep  afforded  a  resource  which  greatly  multipHed 
the  number  of  persons  who  could  live  within  a  given 
area;  and  when  the  same  thing  happened  again  and 
grazing  lands  became  scarce,  the  new  resources  of  agri- 
culture afforded  a  greater  relief.  Maintaining  fixed 
abodes  and  raising  crops  made  it  possible  to  feed  a 
hundred  persons,  more  or  less,  where  one  could  live  by 
very  primitive  methods. 

It  was  the  limited  area  which  brought  populations  to 
starvation,  so  long  as  they  followed  one  mode  of  gaining 
sustenance.  If  the  available  area  had  been  as  elastic 
as  was  ours  while  the  first  occupation  of  our  continent 
was  in  progress,  that  in  itself  would  have  furnished  the 
needed  relief;  but  without  that  resource,  a  change  in 
the  mode  of  food  production  was  the  sole  protection 
against  starvation.    This  fact  typifies  the  whole  history 


12  THE  CONTROL  OF  TRUSTS 

of  human  life.  We  need  more,  better  and  again  better 
means  of  production  if  our  growing  population  shall  be 
kept  above  the  level  of  want. 

Now  what  has  happened  within  a  third  of  a  century 
has  been  such  a  multipl3ang  and  improving  of  instru- 
mentalities of  production  and,  secondly,  the  utilizing 
of  them  on  a  vast  scale.  Big  mills  where  little  ones 
stood,  and  groups  of  big  mills  under  one  management, 
have  added  enormously  to  the  productiveness  of  machin- 
ery. But  we  have  come  to  a  time  when  progress  of  one 
kind  is  in  danger  of  nullifying  progress  of  another  kind. 
When  the  companies  which  use  the  machinery  become 
big  enough  to  be  monopolies,  we  may  count  with  cer- 
tainty on  a  checking  of  the  rapidity  with  which  the 
machinery  improves;  and  it  would  not  take  much  re- 
tarding of  this  kind  to  start  wages  downward.  This,< 
be  it  ever  remembered,  is  far  and  away  the  greatest  \ 
evil  monopoly  can  do.  With  humanity  depending  for 
comfort  and  for  life  itself  on  the  outcome  of  the  race 
between  multiplying  and  improving  instrumentalities, 
on  the  one  hand,  and  growing  numbers,  on  the  other, 
it  would  be  absolutely  fatal  to  put  clogs  on  improve- 
ment.    Taxing  the  public  by  high  prices  is  certainly 


THE  PEOPLE  AND  THE  PROBLEM         13 

bad,  but  it  is  not  comparable  for  badness  with  paralyz- 
ing the  power  to  keep  its  resources  for  creating  income 
always  ahead  of  its  growing  numbers. 

The  alarm  which  the  trusts  have  caused  has  chiefly 
been  due  to  the  smaller  of  the  two  evils  which  they  are 
capable  of  causing.  We  have  thought  of  them  chiefly 
as  taxing  us  by  the  high  prices  of  their  products.  When 
we  look  for  further  evils  we  usually  find  them  in  the 
shape  of  the  low  prices  which  they  are  supposed  to  pay 
for  raw  materials.  Of  their  influence  on  wages  most  of 
us  have  thought  with  a  mental  interrogation  point. 
Some  of  them  have  paid  their  own  employees  at  the  mar- 
ket rate  with  a  slight  addition,  and  it  has  not  always 
been  perceived  that  their  influence  has  been  to  reduce 
wages  in  fields  of  employment  other  than  the  one  which 
they  control.  In  all  these  connections  a  monopoly 
manipulates  values.  It  produces  an  effect  in  distribu- 
tion rather  than  in  production.  What  it  does  is  to  lessen 
somewhat  the  shares  which  many  of  us  get  of  what  is 
annually  produced.  In  doing  this,  however,  these  agents 
are  capable  of  doing  also  something  worse,  though  it  has 
thus  far  disturbed  us  less,  namely,  reducing  the  amount 
of  income  that  is  annually  brought  into  existence. 


14  THE   CONTROL  OF  TRUSTS 

We  do  not  here  retract  anything  that  has  been  said 
as  to  the  economy  of  large  production.  That,  we  know, 
does  figure  in  the  case.  The  trusts  have  saved  wastes 
and  added  to  the  productive  power  of  labor  and  capital; 
but  whenever  they  have  curtailed  their  own  output  as  a 
means  of  exacting  a  high  price  for  it,  they  have  lessened 
the  sum  total  of  production.  They  have  turned  labor 
and  capital  away  from  the  fields  in  which  they  might 
have  been  employed  most  profitably.  These  have  been 
forced  to  seek  employment  elsewhere,  and  even  though 
they  may  have  found  it,  they  cannot  do  as  well,  for 
themselves  or  for  the  public,  as  if  they  had  remained  in 
their  proper  fields.  But  the  paramount  injury,  as  we 
have  already  said,  is  a  check  on  the  improvements  of 
the  future  and  on  the  enlarging  income  which  these 
ensure.  A  monopoly  makes  no  proper  use  of  that  in- 
valuable agent  of  progress,  the  junk  heap.  It  uses  old 
appHances  when,  if  competitors  were  in  the  field,  it 
would  discard  them  and  get  better  ones.  A  few  corpo- 
rations, taking  this  unenterprising  course,  injure 
chiefly  themselves;  but  very  many,  by  doing  it,  might 
put  a  blight  on  civilization. 

The  mere  size  of  the  consolidations  which  have  re- 


THE  PEOPLE  AND  THE  PROBLEM         1 5 

cently  appeared  is  enough  to  startle  those  who  saw 
them  in  the  making.  If  the  carboniferous  age  had  re- 
turned and  the  earth  had  repeopled  itself  with  dino- 
saurs, the  change  made  in  animal  life  would  have 
scarcely  seemed  greater  than  that  which  has  been  made 
in  the  business  world  by  these  monster-like  corpora- 
tions. At  first  their  size  was  about  all  we  were  abso- 
lutely sure  of  concerning  them.  Whether  the  dinosaurs 
of  business  would  be  kind  or  fierce  we  could  scarcely 
tell  with  certainty,  though  they  looked  fierce  enough  and 
much  too  powerful  for  taming.  In  our  law-making, 
we  have  acted  on  this  impression  and  tried  to  extermi- 
nate them. 

After  a  first  alarm  the  feeling  of  the  people  was  some- 
what reassured.  When  it  was  found  that  the  seemingly 
predatory  corporations  were  not  doing  their  worst, 
that  something  was  holding  them  in  check,  and  that 
they  neither  raised  prices  or  depressed  wages  as  it  had 
been  feared  they  would  do,  people  came  to  look  more 
tolerantly  on  them;  but  they  never  gave  them  a  license 
to  continue.  They  had  been  put  on  trial  before  the 
highest  court — the  people  themselves;  the  trial  is  still 
going  on,  and  they  must  accept  the  verdict  which  the 


l6  THE  CONTROL  OF  TRUSTS 

public  will  finally  pronounce.  The  evidence  is  much 
noLore  ample  than  it  originally  was;  for  by  their  actions 
since  they  first  appeared  the  trusts  have  done  much 
to  reveal  their  real  nature.  Technicahties  will  not 
shield  them  in  such  a  trial;  for  as  soon  as  the  nation 
knows  what  it  wants,  it  will  have  its  way,  and  it  is 
now  nearer  to  this  knowledge  than  it  has  been. 

If  we  go  back  to  the  last  days  of  the  nineteenth 
century — let  us  say  to  September  of  1899 — we  can 
determine  fairly  well  the  attitude  of  different  classes 
and  sections  of  the  American  people  at  that  date.  A 
conference  on  the  subject  of  trusts  was  then  held  in 
Chicago  and  the  members  of  it  represented  many  sec- 
tions and  many  interests.  The  addresses  which  were 
delivered  afford  means  of  perceiving  how  the  people 
of  this  country  then  thought  and  were  inclined  to  act  in 
relation  to  vast  corporations.  They  reveal  that  un- 
certainty of  which  we  have  spoken  concerning  the 
actions  of  the  trusts.  The  parties  in  the  conference 
were  divided  about  as  they  probably  were  in  the  coun- 
try and  there  were  a  few  friends  of  the  trusts,  more 
enemies,  and  still  more  inquirers  who  were  waiting  for 
Hght. 


THE  PEOPLE  AND  THE  PROBLEM         1 7 

The  most  encouraging  fact,  however,  which  was  re- 
vealed was  the  existence  of  a  vast  amount  of  moral  earn- 
estness— a  feeling  of  antagonism  to  real  monopoly — 
which  united  people,  particularly  in  the  South  and  the 
West,  in  a  crusade  which  somewhat  resembled  the  anti- 
slavery  movement.     Toward  monopoly  there  was  no 
uncertainty  of  feeling  but  an  overwhelming  hostihty, 
and  the  problem  was  to  what  extent  the  trusts  were  at 
that  time  real  monopolies.    If  it  should  prove  that  they 
were  so  and  could  not  be  reformed,  then  almost  every- 
one would  have  favored  drastic  prohibitions  with  plen- 
tiful penalties  attached  to  them.    The  whole  conducts 
of  the  people  depended,  as  it  depends  now,  on  the  ques-\. 
tion  whether  the  trusts  were,  in  a  true  sense,  monopolies^ 
,and  destined  to  continue  so. 

The  statute  books  of  various  states  bristled  with  laws 
against  the  trusts,  enacted  without  much  study  of  their 
real  nature;  and  from  the  point  of  view  of  many  a  legis- 
lator, the  law  was  best  that  was  severest.  This  zeal 
was  not  according  to  knowledge,  for  it  acted  in  advance 
of  a  careful  inquiry  as  to  what  can  be  done  with  these 
great  corporations  short  of  destroying  them.  It  was, 
nevertheless,  based  on  a  true  instinct — antipathy  to  the 


1 8  THE  CONTROL  OF  TRUSTS 

monopolistic  principle.  Over  the  portal  of  every 
department  of  business  it  wrote  in  flaming  letters, 
"Monopoly  Enters  at  its  Peril";  but  the  error  lay  in 
convicting  the  trusts  of  being  monopolies  without  an 
adequate  trial. 

Though  the  zeal  in  behalf  of  a  free  competitive  sys- 
tem was  greatest  in  the  South  and  West,  it  was  not 
confined  to  those  sections,  for  honest  capital  is  every- 
where in  favor  of  it,  as  is  honest  labor.    The  two  would 
suffer  together  if  monopoly  were  allowed  to  become 
firmly  seated  in  the  business  world;  and  fortunate 
it  is  that  the  country  as  a  whole  is  still  to  be  counted 
on  as  relentlessly  hostile  to  it  and  as  having  no  possible 
use  for  any  political  party  which  accepts  an  "entangling 
alliance"  with  it.    Success  in  elections  can  be  had  only 
under  the  old  banner  of  economic  freedom. 
.     Aside  from  a  few  people  who  might  be  supposed  to  . 
1  favor  real  monopolies  because  they  personally  thrive 
/  by  them,  there  is  only  one  class  who  are  steadily  their 
/   friends.    Pronounced  Socialists  favor  them,  on  grounds 
^  of  what  they  believe  to  be  the  public  interest.    Let  them 
multiply  and  grow  till  they  absorb  the  whole  field  of  in- 
dustry, and  the  government  may  then  step  in  and  ab- 


THE  PEOPLE  AND  THE  PROBLEM         1 9 

sorb  them.  The  trusts  make  it  easier  to  nationalize 
the  different  departments  of  business. 

Some  laborers  are  at  times  attached  to  trusts  by  mo- 
mentary and  precarious  interests.  They  hope  that,  if 
the  companies  exact  high  prices  from  the  purchasing 
public,  they  can  be  made  to  share  benefits  with  their 
workmen;  and  a  really  dangerous  trust  which  has  pub- 
lic opinion  strongly  against  it  may  form  an  alliance 
with  its  workmen,  or  with  important  classes  of  its  work- 
men, against  the  people  at  large.  "  Give  us  high  wages 
and  charge  them  to  the  public  with  a  profit  for  your- 
selves," is  the  demand  made  by  these  laborers.  That 
an  alliance  so  made  will  last  is  not  at  all  sure.  While 
their  battle  with  the  people  is  going  on  the  corpora- 
tions do  not  want  a  fire  in  the  rear;  but  if  they  win  the 
larger  conflict,  it  may  not  be  necessary  for  the  companies 
to  continue  to  bid  for  laborers'  support;  and  in  that 
case,  employees  of  the  trusts  as  well  as  the  great  remain- 
der of  the  working  class  will  be  injured  by  these  con- 
solidations. The  people  at  large  are  and  will  certainly 
continue  to  be  so  injured. 

The  vitally  important  fact  is  that  we  are  not  prac- 
tically dealing  with  corporations  that  have  been  proved 


20  THE  CONTROL  OF  TRUSTS 

to  be  necessarily  monopolies.    We  are  dealing  with  con- 
solidations as  we  know  them — great  corporations  of 
which  we  may  be  sure,  first,  that  they  have  not  a  com- 
j  plete  monopolistic  power,  though  many  of  them  have  a 
/    certain  power  to  repress  competition.    Can  the  monopo-i 
/    listic  element  which  they  do  contain  be  taken  out  oi 
them?    This  is  the  vital  question  and  our  whole  polic})! 
depends  on  it.    The  answer  will  tell  us  whether  we  can 
tame  our  dinosaurs  and  convert  them  into  draught 
animals  or  can  do  nothing  with  them  except  to  kill 
them. 

With  the  monopolistic  power  taken  away,  they  will 
be  highly  productive  and,  in  their  methods,  they  will 
be  progressive.  Under  their  regime  we  may  expect 
that  the  production  of  wealth  will  go  on  multiply- 
ing and  that  this  will  bring  with  it  the  possibility  of 
higher  and  higher  wages.  If  this  power  cannot  be 
taken  away — if  the  evils  which  flow  from  their  par- 
tially monopolistic  character  grow  greater  and  greater — 
then  we  must  treat  them  as  outlaws  and  have  done 
with  them.  Dissolution  is  what  they  require.  It  is  not 
worth  while  trying  to  domesticate  a  genuine  "octopus." 
One  may  even  say  that  the  plan  of  letting  them  all 


I 


TBE  PEOPLE  AND  THE  PROBLEM         21 

grow  and  then  making  the  government  seize  them,  will 
become,  for  the  first  time,  a  more  or  less  reasonable 
plan  of  action.  We  shall  then  find  much  to  say  in  favor 
of  Socialism;  and  if  we  are  not  ready  to  go  to  that  length, 
we  shall  find  something  to  say  in  favor  of  a  half-way 
plan,  by  which  the  government,  without  taking  pos- 
session of  these  industries,  shall  dictate  the  prices  at 
which  they  shall  sell  their  products.  Of  that  program 
of  action  we  shall  find  something  to  say  later.  It  is 
not  one  to  be  commended. 

There  is  a  resource  which  has  already  been  mentioned, 
and  utilizing  it  for  all  it  is  worth  is  the  reasonable  pres- 
/ent  course  of  action.  The  assumption  that  trusts  snej 
S^hopeless  monopolies  is  not  only  unproved  but  untrueJ 
since  we  can  take  much  of  the  evil  element  out  of  them. 
We  can  preserve  the  good  that  is  in  them  and  cast  away 
the  bad — which  means  that  we  can  save  all  the  pro- 
ductive energy  which  vast  capital  insures  and  make  our- 
selves triumphant  in  the  competition  of  the  world, 
possessing  our  own  markets  and  selling  much  in  foreign 
markets,  not  because  our  workmen  will  take  low  wages 
but  because,  thanks  to  automatic  machines  and  big 
shops,  they  can  create  a  large  product. 


22  THE  CONTROL  OF  TRUSTS 

America  is  the  natural  home  of  the  trusts;  but  if  we 
can  draw  the  fangs  of  the  monster  and  train  it  to  good 
uses,  we  can  get  therefrom  an  advantage  over  other 
nations  and  realize  all  the  benefits  it  is  possible  to  get 
out  of  material  civilization.  We  can  be  leaders  in  prog- 
ress and  win  the  prizes  that  leadership  brings;  namely- 
abundant  wealth,  honestly  gained,  widely  dispersed 
among  the  people  and  ensuring  a  high  level  of  life,  in- 
tellectual and  moral  as  well  as  physical. 

Momentous  beyond  the  power  of  language  to  express 
is  the  question  how  far  centralization  may  be  allowed 
to  go  without  fastening  on  the  people  the  intolerable 
burden  of  monopoly.  The  light  that  has  come  to  us 
within  the  last  dozen  years  goes  far  toward  enabling  us 
to  answer  the  question,  and  it  is  safe  now  to  say  that 
centralization  can  go  far  enough  to  give  us  a  maximum 
of  productivity  without  destroying  freedom  of  individ- 
ual action,  competition  and  the  right  of  contract,  and 
without  destroying  the  incentives  offered  to  inventive 
genius  or  putting  any  check  on  the  progress  that  has 
given  to  civilization  its  vast  productive  power.  We 
must  abandon  the  hope,  if  it  is  a  hope,  of  restoring  the 
old  system  of  production  with  its  myriad  of  small  shops, 


THE  PEOPLE  AND  THE  PROBLEM         23 

and  still  be  confident  that  we  shall  get  out  of  the  trou- 
bles and  dangers  that  the  great  shops  cause.  We  can 
keep  our  optimism  without  looking  forward  to  the 
seizing  of  all  capital  by  the  state.  If  the  vision  of  an 
economic  millennium  comes  to  cheer  us,  it  will  not  de- 
pend on  the  keeping  of  a  common  purse  and  the  sharing 
of  everything  on  a  totally  new  plan. 

What  we  shall  see  before  us  is  endless  progress  en- 
sured by  forces  that,  in  themselves,  are  old  and  fa- 
miliar. We  shall  see  the  wealth-creating  power  of  the 
social  organism  always  growing,  wages  always  rising 
and  capital  indeed  often  massed  in  enormous  amounts, 
but  with  the  ownership  of  much  of  it  scattered  in  a 
myriad  of  little  holdings  among  the  people.  We  shall 
see  workers  gradually  acquiring  capital,  while  earning 
wages  in  the  mill;  we  may  see  business  operations  mov- 
ing so  steadily  that  bonds  and  even  the  stocks  of  in- 
dustrial companies  may  be  made  common  and  safe 
forms  of  investment  of  workers'  savings.  It  is  a  happy 
feature  of  the  outlook  that  the  sharp  line  of  demarca- 
tion between  the  capitaHst  class  and  the  laboring  class 
will  be  blurred  and,  in  many  cases,  obliterated — since 
men  who  work  will  have  a  participatory  interest  in 


24  THE  CONTROL  OF  TRUSTS 

the  tools  they  use  and  a  share  in  what  the  tools  pro- 
duce. The  Socialist  is  not  the  only  man  who  can  have 
beatific  visions,  for  the  picture  of  a  manly  development 
for  the  laborer  with  a  perpetual  rise  in  wages  and  in- 
crease in  savings,  a  picture  of  harmony,  personal  inde- 
pendence and  culture  comes  before  everyone  who  sees 
what  competition  is  capable  of  doing. 

Every  party  that  is  worth  considering  now  demands 
that  a  "laissez  faire"  policy  be  abandoned;  it  has  no 
friends  and,  in  present  conditions,  deserves  none.  To  ^- 
advocate  it  is  to  convict  oneself  of  being  either  a  hope- 
less reactionary  or  a  lunatic.  The  practical  thing  to  be 
decided,  then,  is  what  a  state  can  do  to  open  the  rift 
between  centralization  and  monopoly  and  keep  the  one 
while  suppressing  the  other.  If  we  can  accomplish  this, 
we  shall  get  the  benefits  from  great  establishments, 
put  a  stop  to  the  extortion  which  they  sometimes  prac- 
tise, and  ward  off  the  greater  extortion  that  they  would 
practise  if  they  dared.  We  shall  ensure  progress  in  the 
methods  of  production  and  make  over  the  chief  benefits 
from  it  to  the  people. 

It  is  from  a  very  thorny  and  dangerous  bush  that  we 
shall  have  to  pluck  the  flower  of  industrial  and  com- 


THE  PEOPLE  AND  THE  PROBLEM         25 

mercial  success.  To  advocate  a  mode  of  doing  it  is  the 
main  purpose  of  this  small  book.  We  have  to  see  which 
of  the  plans  that  have  been  proposed  would  work  ill 
and  what  one  ajffords  a  promise  of  working  well.  The 
key  to  success  is  afforded  by  the  natural  forces  that 
even  now  put  a  strong  curb  on  the  great  corporations. 
We  have  to  strengthen  that  curb,  and  in  this  we  shall 
only  act  according  to  nature.  We  shall  do  what  a 
skillful  physician  does  when  he  helps  his  patient  to  get 
well  by  removing  the  obstructions  that  prevent  vital 
forces  from  healing  him. 

Great  corporations  would  seldom  be  monopolies  if 
competition  were  not  fettered  by  altogether  abnormal 
means — if  the  independent  producer  had  a  fair  field 
and  no  favor.  It  was  in  the  eighties  of  the  last  century 
that  trusts  went  through  a  hard  experience,  which 
proved  instructive  to  them  and  should  be  illuminating 
to  those  who  are  seeking  a  way  out  of  the  dangers  that 
they  have  caused;  and  since  this  bit  of  history  was  en- 
acted, certain  fundamental  facts  are  so  well  known  that 
we  encounter  them  continually  in  discussions  of  the 
problem  of  trusts.  When  prices  are  raised  beyond  a 
certain  point,  owing  to  the  too  grasping  policy  of  some 


26  THE   CONTROL  OF  TRUSTS 

trusts,  the  thing  still  happens  which  happened  more 
frequently  in  the  early  history  of  combinations.  As  a 
rule  new  competitors  appear  in  the  field. 

Capital  is  seeking  outlets,  and  it  is  not  altogether 
easy  to  find  those  which  are  both  profitable  and  safe. 
The  hope  of  a  sufficient  profit  will  cause  it  to  brave  a 
certain  amount  of  danger.  In  the  early  days  new 
mills  were  built  readily  and  almost  recklessly  wherever 
consolidated  companies  did  not  know  enough  to  pro- 
ceed on  a  conservative  plan.  Now  they  are  less  easily 
lured  into  existence,  since  the  risk  they  encounter  is 
greater  than  it  was;  but  it  is  true  even  now,  in  most 
departments  of  industry,  that  if  a  combination  of 
producers  raises  its  prices  beyond  a  certain  limits  it 
encounters  the  old  check,  which  comes,  not  by  any  act 
of  the  government,  but  from  the  new  mills  which 
spring  into  existence  and  bring  the  prices  down.  It  is 
the  fear  of  these  new  mills  that  still  is  effective  enough 
to  keep  prices  from  rising  beyond  a  certain  height,  al- 
though this  fear  alone  cannot  usually  keep  them  from 
becoming  somewhat  extortionate.  The  mill  that  has 
never  been  built,  but  is  ready  to  be  built  under  certain 
conditions,  is  still  a  controlling  power,  though  at  pres- 


THE  PEOPLE  AND  THE  PROBLEM         27 

ent  it  holds  the  trusts  with  too  long  a  leash  and  allows 
them  too  wide  a  range  within  which  to  work  their  will. 
The  real  difficulty  is  that  the  influence  of  this  latent 
competition  cannot  be  trusted  as  it  could  in  earlier  days. 
Even  in  the  eighties  there  was  a  certain  range  within 
which  the  trusts  could  have  raised  their  prices  without 
calling  the  latent  competition  into  positive  activity. 
That  range  has  since  been  increased,  because  the  pos- 
sible competitor  does  not  become  an  actual  one  as 
promptly  as  he  should.  The  trouble  is  that  he  has  not 
a  fair  chance  for  his  life  when  he  appears  on  the  scene. 
He  is  in  danger  of  being  crushed  by  the  trust,  and  that 
too,  not  in  any  natural  way,  but  by  certain  entirely 
abnormal  things  that  the  trust  is  able  to  do.  If  the 
great  company  could  not  do  these  things,  the  com- 
petitor would  be  comparatively  safe,  and  in  many  de- 
partments of  industry  he  would  appear  promptly  when- 
ever profits  should  become  high  enough  to  make  his 
presence  desirable.  Under  such  conditions  the  mere 
possibiHty  of  his  coming  would  hold  prices  almost  at  a 
natural  level.  The  trust  would  benefit  the  people  by  its 
economies  and  would  not  greatly  trouble  them  by  its 
exactions. 


28  THE  CONTROL  OF  TRUSTS 

While  experience  has  proved  in  hundreds  of  cases, 
within  the  short  period  during  which  modern  trusts 
have  existed,  that  potential  competition  is  a  real  force, 
it  has  also  shown  that  it  is  a  force  which  can  be  easily- 
obstructed.  It  is  a  proverb  that  capital  is  timid,  and 
yet  it  now  has  to  be  bold  in  order  to  do  what  the  public 
needs  to  have  it  do.  The  men  who  built  mills  *Ho  fight 
trusts "  always  took  some  risk;  but  of  late  they  have  had 
to  take  more,  and  the  solution  of  the  whole  problem 
depends  on  first  removing  this  abnormal  risk^  When  it 
is  gone  we  shall  have  this  condition — first,  that  po- 
tential competition  will  be  effective,  and  secondly,  that 
much  actual  competition  will  be  found  in  the  field.  Be- 
tween them,  they  will  be  able  to  do  much  of  the  neces- 
sary regulating,  and— what  is  better  still — they  will 
ensure  progress  in  productive  power. 

Overgrown  capitals  can  now  bully  small  ones.  The 
big  company  has  a  right  to  beat  the  little  one  in  an  hon- 
est race  for  cheapness  in  making  and  selling  goods; 
but  it  has  no  right  to  foul  and  disable  its  competitor. 
This  is  exactly  what  trusts  are  doing;  and  under  these 
conditions,  potential  competition  cannot  well  become 
active  in  response  to  a  small  inducement.    The  state 


THE  PEOPLE  AND  THE  PROBLEM         29 

needs  to  make  sure  that  the  latent  competitive  force 
is  always  ready  to  spring  into  activity.  At  this  point 
the  industrial  mechanism  is  delicate,  and  the  agent 
that  is  depended  on  is  highly  sensitive  to  injuries; 
and  yet  clumsy  laws  and  clumsier  policing  allow  it  to 
receive  rough  handling  when  it  comes  into  the  field, 
and  the  knowledge  of  this  so  terrorizes  it  in  advance  that 
often  it  does  not  come  into  the  field  at  all. 

Trusts  have  long  been  permitted  to  do  with  impunity 
things  that  are  out  of  harmony  with  the  spirit  of  the 
law — things  that  they  could  not  have  done  if  the  law 
had  accomplished  the  single  task  which  even  a  narrow 
Spencerian  policy  demands  of  it,  namely,  the  protection 
of  property.  There  are  actions  that  have  in  them  the 
essence  of  roguery,  though  they  have  seldom  been  de- 
fined and  forbidden  by  statutes.  It  is  clear  that  they  are 
not  outside  of  the  scope  of  common  law,  nor  are  they  be- 
yond the  field  of  action  of  the  Sherman  Anti-trust 
Law,  as  now  imderstood;  but  these  laws  are  still  inade- 
quate to  cope  with  the  growing  problem  which  these 
unfair  practices  present^  We  shall  see  what  these 
actions  are  and  what  policy  they  call  for.  We  shall  see 
how,  by  preventing  them,  we  can  make  very  large  cor- 


30  THE  CONTROL  OF  TRUSTS 

porations  legitimate  and  safely  avail  ourselves  of  their 
productive  power.  The  government  can  use  insight, 
discover  how  nature  is  already  working,  be  guided  to 
the  right  experiment  and  try  it  promptly.  It  can 
liberate  the  competitive  forces  that  even  now,  tram- 
meled as  they  are,  make  our  state  endurable,  and  it 
can  enable  them  to  develop  their  full  influence  and  make 
the  condition  comfortable  and  encouraging.  It  can  do 
this  while  fostering  and  not  repressing  general  pros- 
perity, and  while  increasing  and  not  lessening  our  chance 
of  success  in  the  fierce  economic  rivalries  into  which 
nations  are  entering. 


CHAPTER  II 

COMBINATION  VERSUS   MONOPOLY 

Productive  efficiency  vs.  brute  strength — Great  size  does  not  always 
mean  increased  efficiency — Unfair  practices  which  may  ruin  even 
efficient  competitors — Their  effect  on  potential  competitors — ^Ad- 
vantages of  consolidation  over  a  condition  of  active  rivalry, 
if  the  combination  is  effectively  checked  by  potential  competition 
— ^The  policy  of  a  secure  monopoly — ^Its  effect  on  labor  in  the 
monopolized  industry,  and  in  the  general  field — Mitigating  cir- 
cumstances— Danger  if  monopoly  spreads  and  narrows  the  com- 
petitive field. 

Some  centralization  grows  by  mere  efficiency.    The 

better  shops  distance  their  rivals  and  take  their  trade. 

The  survival  of  the  fittest  is  hard  for  the  unfit  but  good 

for  the  world.    But  there  is  another  sort' of  centraH- 

zation,  and  we  have  had  much  experience  with  it. 

It  has  a  very  different  color  from  that  which  comes  by 

efficient  service  to  society  and  by  surpassing  rivals  in 

a  race  for  excellence.    It  exterminates  competitors  in 

ways  that  are  not  dependent  on  its  own  excellence  and 

their  inefficiency,  and  the  exterminating  is  very  far 

from  benefiting  society.     The  trust  may  crush  rivals 

31 


32  THE  CONTROL  OF  TRUSTS 

that,  within  the  spheres  where  they  operate,  serve  so- 
ciety better  than  it  does.  When  a  producer  of  this 
kind  is  forced  out  of  his  field  he  is  not  a  vicarious  sacri- 
fice for  the  good  of  the  pubhc  as  a  whole;  he  and  the 
public  are  both  victims  and  the  sacrificing  of  him 
works  as  ill  as  possible  for  everyone  except  the  trust. 
It  must  be  stopped  if  society  shall  avoid  graver  evils 
than  have  recently  come  upon  it  from  any  economic 
cause. 

Mere  size  is  credited  with  giving  to  a  corporation 
more  power  than  it  actually  does  give.  Does  it  enable 
a  trust  to  have  the  market  to  itself  and  charge  what  it 
will  for  its  goods?  Does  it  make  it  practicable  for  the 
combination  to  shut  up  as  many  of  its  mills  and  dis- 
charge as  many  of  its  laborers  as  it  pleases,  without 
seeing  rivals  entering  the  field  and  beginning  to  furnish 
the  goods  which  the  trust  has  ceased  to  supply?  If  it 
does  all  this,  the  situation  is  so  intolerable  that  no 
treatment  is  unjustifiable  to  which  the  state  may  be 
forced  to  resort  in  order  to  rid  itself  of  the  evil.  Under 
some  conditions  the  trust  can  do  these  things;  under 
others  it  cannot,  and  the  state  can  create  these  other 
conditions. 


COMBINATION  VERSUS  MONOPOLY  33 

When  we  look  at  a  big  corporation  and  see  how  help- 
less a  little  one  would  be  in  trying  to  rival  it,  we  are  in 
danger  of  concluding  at  once  that  competition  is  dead; 
but  there  are  very  great  powers  latent  in  the  business 
world  that  can  be  called  into  activity,  and  that  are  able 
to  accomplish  what  we  desire.  It  is  commonly  supposed 
that  mere  size  nearly  always  gives  a  corporation  a  de- 
cisive advantage  in  legitimate  competition  with  smaller 
ones.  This,  however,  is  an  inaccurate  supposition.  It 
is  in  competition  of  a  very  abnormal  kind  that  bigness 
gives  fighting  power.  If  all  its  prices  are  cut,  the 
great  company  stands  to  lose  vastly  more  than  the 
smaller  one  would  lose  from  a  similar  reduction.  A 
concern  with  a  capital  of  $100,000,000  cannot  lose 
$5,000,000  a  year  any  more  safely  than  one  with  a 
capital  of  $100,000  can  lose  $5,000  a  year.  In  a  war 
between  the  two  fairly  conducted  the  small  company 
might  hold  out  as  long  as  the  big  one.  If  the  losses 
that  a  corporation  sustains  by  cut-throat  competition 
are  in  proportion  to  the  amount  of  its  capital,  it  is  not 
necessarily  a  dangerous  competitor. 

It  is  a  fact  of  experience  that  a  new  mill,  equipped 
with  the  latest  and  the  best  machinery,  is  often  a 


34  THE  CONTROL  OF  TRUSTS 

stronger  competitor  than  a  trust  which  is  encumbered 
with  antiquated  plants.  If  legitimate  rivalry  in  cheap- 
ening production  were  all  that  were  to  be  feared,  it 
would  be  safe  to  build  a  good  mill  and  try  to  get  patron- 
age for  it. 

Wholly  intolerable,  however,  will  our  condition  soon 
become  if  the  trust  can  continue  to  use  every  unfair 
advantage  which  its  size  gives  to  it.  If  it  can  follow 
a  newcomer  who  enters  its  field  as  a  rival  and  imder- 
bid  him  in  his  special  territory,  while  keeping  up  its 
prices  everywhere  else,  it  has  an  advantage  which  is 
very  decisive.  Even  though  the  competitor  may  greatly 
excel  the  trust  in  the  economy  with  which  he  makes 
goods,  he  may  be  forced  out  of  business  by  this  predatory 
policy.  A  producer,  who  found  himself  in  this  position, 
once  called  on  the  manager  of  the  trust  that  was  driving 
him  to  the  wall,  and  was  received  with  a  brusque  ad- 
monition that  he  had  "better  get  out  of  the  business." 
"But  do  you  not  see,"  said  the  independent  producer, 
"that,  in  my  territory,  I  can  produce  more  cheaply 
than  you  can?"  "Do  you  not  see,"  was  the  reply, 
"that,  if  we  lose  money  in  the  twenty  cities  where  you 
are  operating,  and  make  money  in  the  two  hundred 


COMBINATION  VERSUS  MONOPOLY  35 

Other  cities  where  we  are  operating,  we  come  out  ahead?" 
Such  local  discrimination  is  a  strategic  measure  that 
is  often  irresistible. 

Again,  discriminations  may  be  made,  not  between 
different  locaUties,  but  between  dijfferent  grades  of  goods 
on  the  general  price  scale.  The  trust  may  make  many 
varieties  of  one  general  kind  of  merchandise,  while 
the  competitor  may  make  only  one.  In  that  case,  even 
though  he  may  operate  in  many  sections  of  the  country, 
the  trust  may  pursue  and  destroy  him.  It  may  reduce 
the  price  of  his  type  of  goods  below  cost,  while  keeping 
all  other  prices  at  the  original  high  level. 

Thirdly,  the  trust  may  refuse  to  sell  goods  at  all  * 
under  certain  conditions.  It  may  boycott  merchants 
who  do  not  comply  with  its  regulations;  and  one  of  its 
requirements  may  be  that  the  merchants,  in  turn,  shall 
boycott  all  independent  producers.  This  is  the  basis 
of  the  "factors'  agreement,"  whereby  a  trust  which, 
within  the  wide  variety  of  its  products,  has  a  number 
of  things  that  are  essential  for  a  merchant's  business, 
either  refuses  to  sell  him  anything  or  refuses  to  give  him 
necessary  discounts,  if  the  merchant  buys  goods  of  any  | 
description  from  a  competing  establishment.  ! 


36  THE  CONTROL  OF   TRUSTS 

An  important  point  in  this  connection  is  that,  if  a 
rival  knows  in  advance  that  this  is  what  will  happen 
to  him  as  soon  as  he  builds  a  mill,  he  will  not  build  it. 
The  danger  resulting  from  discriminating  prices  made 
by  the  trust  is  sufficient  not  only  to  drive  him  out  of 
his  field,  after  he  enters  it,  but  to  keep  him  out  in  ad- 
vance of  any  effort  to  enter. 

How  much,  then,  will  potential  competition  be  able 
to  accomplish  under  the  most  favorable  conditions 
which  we  can  create?  Suppose  we  take  away  all  the 
trust's  clubs,  and  force  it  when  it  crushes  rivals,  to 
do  so  only  by  serving  all  its  customers  better  than  they 
serve  theirs.  This  would  make  efficient  service  to  the 
pubKc  the  sole  test  of  survival.  How  much,  then,  would 
the  monopoly  amount  to?  We  can  form  some  idea 
by  supposing  that,  in  many  industries  producers  had 
joined  forces  till  competition  of  the  old  type  should  have 
entirely  ceased,  while  at  the  same  time  capital  and 
labor  were  left  ideally  free  and  able  to  move  in  perfect 
security  to  any  point  where  gains  are  to  be  made  by  the 
movement.  One  would  then  picture  to  himself  a  world 
entirely  free  from  the  overt  struggle  which  large  num- 
bers of  competitors  have  at  times  maintained  against 


COMBINATION  VERSUS  MONOPOLY  37 

each  other.  A  department  of  business  would  no  longer 
be  represented  by  one  hundred  mills  of  one  kind,  work- 
ing independently  of  each  other  and  struggling  des- 
perately to  get  away  each  other's  patrons.  What  one 
would  see  would  be  a  condition  in  which  it  would  not  be 
necessary  for  private  producers  to  pull  bewildered  pur- 
chasers this  way  and  that,  by  the  eloquence  of  travel- 
ing salesmen,  by  the  enticing  statements  of  newspaper 
advertisements  and  by  the  allurements  that  are  offered 
by  art  and  eloquence  as  these  are  combined  in  the 
decorations  of  American  roadways,  street  railway  cars 
and  available  wall  spaces.  There  would  be  very  great 
economy  in  a  condition  in  which,  in  every  department 
of  industry,  there  should  be  one  great  corporation  work- 
ing without  friction;  and  if  only  it  were  compelled  to 
give  to  the  pubUc  the  full  benefit  of  the  economy,  the 
situation  would  be,  in  its  way,  ideal.  This  last  is  a 
crucial  point  however,  for  the  monopolizing  of  the  field 
will  take  place  wherever  opportunity  for  it  is  offered, 
and  a  considerable  economy  will  result  from  it,  but  it 
will  take  a  struggle  to  secure  for  the  people  a  due  share 
of  the  benefits. 

Of  course  in  making  potential  competition  available 


38  THE  CONTROL  OF  TRUSTS 

and  so  getting  for  the  public  a  measure  of  benefit  from 
consolidation,  mere  publicity  will  afford  enormous  help. 
Among  the  things  that  the  pubhc  must  know  for  its 
guidance  in  buying  industrial  securities  is  the  earning 
capacity  of  the  plants  a  trust  owns.  If  this  is  large, 
the  inducement  for  other  capital  to  enter  the  same 
field  is  proportionately  large.  It  is  clear,  however, 
that  such  pubHcity  is  far  from  accomplishing  all  that 
the  consuming  public  wishes  to  have  accomplished. 
It  is  conceivable  that  the  investor  in  trust  shares  may 
be  made  safe,  while  the  competitor,  to  whom  the  large 
profits  are  an  attraction,  may  be  sacrificed,  so  that  the 
consumer  and  laborer  may  then  find  their  interests  in 
great  danger;  and  the  more  difficult  problem  for  the 
people  to  solve  is  the  one  which  they  have  all  along 
been  trying  to  solve:  that  of  protecting  these  latter 
classes. 

What  would  a  monopoly  do  if  it  were  perfectly  se- 
cure in  its  position  of  power?  If  it  were  the  only  source 
from  which,  in  this  country,  goods  of  a  certain  kind  could 
be  had,  what  would  be  its  rule  for  fixing  prices?  In  a 
general  way  it  is  not  difficult  to  answer  this  question. 
It  will  charge  those  prices  which  afford  the  largest 


COMBINATION  VERSUS  MONOPOLY  39 

sum  total  of  net  profit.  Whatever  rates  will  pay  in- 
terest on  all  the  real  capital  employed  and  wages  on 
all  kinds  of  labor  and  a  maximum  of  gain  besides,  will  be 
adopted. 

Of  course,  this  maximum  of  net  profit  depends  partly 
on  the  volume  of  business  done,  and  if  prices  are  raised 
so  much  as  to  make  the  business  very  small,  there  may 
be  no  profit  at  all  over  and  above  wages  and  interest. 
It  is  only  up  to  a  certain  point  that  prices  can  be  raised 
with  advantage  to  the  monopoly.  Indeed,  the  price 
raising  operation  might  conceivably  be  carried  to  such 
a  point  that  interest  itself  and  even  the  wages  of  labor 
could  not  be  paid.  If  charges  for  the  goods  produced 
go  up  in  a  tentative  way,  it  will  be  found  that  every 
rise  lessens  the  sales,  though  it  increases  the  rate  of  profit 
on  each  article  sold.  For  a  time  this  increase  of  the 
rate  more  than  offsets  the  diminution  of  the  voliune 
of  the  business  and  the  total  amount  of  gain  grows 
steadily  larger.  After  a  certain  point  is  reached  it  will 
be  found  that  the  opposite  is  the  case  and  that  the 
shrinkage  in  the  amount  of  business  done  reduces  the 
total  gains  more  than  the  profit  on  each  article  increases 
them.     No,  monopoly  is  interested  in  raising  prices 


40 


THE   CONTROL  OF  TRUSTS 


beyond  the  point  at  which  its  total  profits  begin  to 
dwindle.* 

The  Effect  of  Monopoly  on  the  Wages  of  Labor 

Monopoly  is  unfavorable  to  the  welfare  of  laborers, 

as  well  as  to  that  of  consumers,  and  yet  one  of  the  para- 


DIAGRAM   REPRESENTING   MONOPOLY  PRICE 

In  the  accompanying  figure  distance  along  the  line  O  C,  represents  the 
amount  of  goods  produced,  while  vertical  distance  above  this  line 
measures  costs  of  production  as  well  as  selling  prices,  and  the  descending 
curve  F  B  represents  the  varying  amounts  of  goods  that  can  be  sold 
at  different  prices,  the  amount  diminishing  as  the  price  increases,  or 
vice  versa.  If  the  cost  of  making  the  goods  is  represented  by  the  level 
of  the  line  A  B,  then  a  monopoly  will  fix  its  price  at  the  level  of  the  line 
D  E,  so  that  the  shaded  area,  which  represents  the  sum  of  the  net 
profits  on  all  sales,  should  be  as  large  as  possible. 

Obviously,  this  assumes  that  the  sales  are  made  to  an  outside  public, 
which  can  thus  be  exploited.  If  the  field  of  monopoly  increases  and  that 
of  competition  narrows,  we  shall  approach  a  condition  in  which  the 
monopolists  would  have  only  each  other  to  exploit,  and  at  the  final 
stage  when  all  industry  should  be  in  one  vast  consolidation,  it  would 
constitute  the  consuming  public.  An  all-inclusive  combination  that 
should  act  as  a  monopoly  by  limiting  output,  would  be  a  logical 
absurdity. 


COMBINATION  VERSUS  MONOPOLY  4 1 

doxes  of  the  present  situation  is  that  consoKdated  cor- 
porations often  make  large  claims  as  to  what  they  are 
doing  for  the  working  class.  They  claim  that  if  they  pay 
their  own  workmen  somewhat  more  than  other  work- 
men get,  they  exercise  a  beneficent  influence  in  a  labor 
market.  This  fact  may  help  to  make  their  own  em- 
ployees friendly  to  them,  but  it  is  very  far  from  de- 
ciding in  their  favor  the  case  in  equity  between  them' 
and  the  working  class  generally.  If  we  wish  to  find 
out  whether  labor  owes  a  debt  of  gratitude  to  the  trusts, 
a  most  unintelligent  way  of  ascertaining  this  is  simply 
to  look  at  the  scale  of  wages  which  they  pay  to  their 
own  men.  The  condition  of  the  men  whom  they  turn 
off  when  they  close  plants  and  restrict  production  is  to 
be  considered,  and  the  effect  which  the  exclusion  of 
these  men  will  have  on  the  general  market  for  labor  is 
the  final  and  decisive  test  of  the  trust's  claim. 

At  the  time  of  its  organization  a  trust  almost  inva- 
riably finds  that,  from  its  own  point  of  view,  there  is 
"over-production"  in  its  particular  Hne  of  business  and 
proceeds  to  shut  up  some  of  its  mills.  In  doing  this 
it  naturally  selects  the  poorer  ones  and  it  may  somewhat 
increase  the  output  of  the  better  ones;  but  on  the  whole, 


42  THE  CONTROL  OF  TRUSTS 

it  relieves  what  it  terms  over-production  at  the  cost  of 
turning  a  certain  number  of  men  out  of  the  business. 
These  men  go  into  the  labor  market  and  find  employ- 
ment as  best  they  can,  and  their  presence  means  a  slight 
depression  of  the  rate  of  wages  generally  paid.* 


123  45   6  789  10       123456789  10 

Normal  distribution 
Fig.  I 


123456789  10     123456789  10 

Monopoly  distribution 
Fig.  n 


*The  above  diagrams  picture  the  field  of  employment  for  labor, 
divided  in  two  parts  representing  respectively  the  industries  that  are  in 
danger  of  being  monopolized  and  those  that  are  not.  The  heights  of 
the  rectangles  represent  the  diminishing  value  of  the  products  which 
successive  units  of  labor  can  turn  out,  and  the  rate  of  wages  is  fixed  by 
the  value  of  the  product  turned  out  by  the  last  or  marginal  laborer.  If 
there  are  ten  units  of  labor,  normal  wages  will  be  measured  by  the 
height  of  the  line  A  B  above  the  base  (Fig.  I). 

In  the  second  diagram,  one  half  the  field  of  employment  has  been 
monopolized,  the  output  limited  and  the  number  of  labor-units  it  em- 
ploys cut  down  from  five  to  three.  The  two  displaced  units  must 
crowd  into  the  competitive  field,  forcing  the  value  of  labor  down  to 
the  level  of  the  line  E  F.  The  labor  employed  by  the  monopolies  may 
get  more  than  this,  for  the  monopoly  gains  that  come  from  Hmiting 
the  labor  employed  (and  are  represented  by  the  shaded  area  in  the 
diagram)  may  be  shared  with  those  laborers  who  remain  in  the  favored 
industries.  Even  if  they  continue  to  get  the  old  rate  A'B',  they  will 
be  getting  more  than  the  new  competitive  rate,  lowered  as  that  is  by 
the  action  of  the  trusts  themselves.    In  that  case,  friends  of  the  trust 


COMBINATION  VERSUS  MONOPOLY  43 

The  over-production  that  is  alleged,  as  a  reason  for 
discharging  the  men,  may  or  may  not  be  properly  so 
called.  The  output  may  be  too  large  to  permit  a  very 
high  rate  of  profit  to  be  reahzed,  but  not  too  large  to 
benefit  the  public.  It  may  be  excessive  in  the  view 
of  those  who  want  high  prices  but  not  at  all  so  in  the 
view  of  those  who  prefer  lower  prices  and  a  fuller  sup- 
ply of  necessities  and  comforts. 

Even  an  organization  of  workers  themselves  may  do 
its  part  in  reducing  the  general  rate  of  pay,  while  rais- 
ing its  own  special  rate.  Wherever  it  says  to  its  em- 
ployer, "Give  us  more  pay  and  charge  the  cost  of  it 
to  the  public,"  it  impels  the  employer  to  the  course  just 
described.  He  can  give  the  extra  pay  to  a  reduced  force, 
since  that  means  a  reduced  product  and  a  higher  price 
for  it.  A  labor  organization  may  thrive  somewhat  by 
this  means.    It  is  a  partnership  in  gains  wrested  from 

might  argue  that  it  had  benefited  labor  and  raised  wages  above  the 
competitive  level!  Obviously,  the  reverse  is  the  case.  Outside  labor 
has  lost,  labor  within  the  monopolies  may  or  may  not  have  gained, 
according  to  its  bargaining  power,  while  the  consumers  have  lost 
through  the  diminished  producing  power  of  the  displaced  labor.  This 
loss  is  measured  by  the  dijfference  between  the  areas  of  rectangles  four 
and  five,  which  the  monopoly  no  longer  produces,  and  of  rectangles 
six  and  seven,  which  is  all  the  displaced  labor  can  produce  in  its  new 
situation. 


44  THE  CONTROL  OF  TRUSTS 

the  public,  and  is  brought  about  by  a  certain  compound- 
ing of  monopolies.  The  union  will  try  to  keep  inde- 
pendent labor  out  of  its  field  as  the  employing  companies 
will  try  to  keep  out  independent  capital. 

A  secure  monopoly  can  set  its  own  price  for  raw 
Jj  material  although,  if  the  same  material  is  available 
for  other  uses,  the  price  is  not  entirely  under  the  one^ 
buyer's  control.  This  fact  however  does  not  make  it 
impossible  to  state  the  principle  which  will  govern  his 
conduct  in  buying  his  share  of  it.  He  will  pay  the 
lowest  price  which  will  cause  the  necessary  amount  to 
be  produced.  In  some  cases  the  monopoly  is  so  large 
a  user  of  the  raw  material  that  its  action  very  nearly 
controls  the  price.  The  less  it  pays,  the  lower  the  price 
goes,  and  here  is  a  further  incentive  for  curtailing  its 
product. 

This  question  has  its  complexities,  and  for  our  pur- 
poses it  is  not  necessary  to  go  into  them.  The  general 
fact  is  that  the  profits  which  a  monopoly  realizes  by 
curtailing  the  amount  of  its  output  are  due  partly  to 
the  lower  price  at  which  it  can  buy  materials  and  partly 
to  the  higher  price  at  which  it  can  sell  its  product. 
Owing,  however,  to  the  fact  that  the  material  which  it 


COMBINATION  VERSUS  MONOPOLY  45 

buys  is  very  often  available  for  other  uses,  it  is  not 
usually  able  to  reduce  the  price  of  this  as  much  as  it 
raises  the  price  of  what  it  has  to  sell. 

For  instance  what  power  would  a  linseed  oil  trust  ]. 
have  over  the  price  of  the  flax  seed  which  is  its  raw  I 
material?  The  seed  itself  is  limited  to  this  one  use, 
and  could  have  no  effective  market  except  through  the 
trust,  but  on  the  other  hand  the  fibre  of  the  flax  itself 
could  be  sold  in  markets  unaffected  by  the  trust.  Flax 
could  be  grown  for  the  sake  of  the  fibre,  even  though 
the  seed  would  then  have  to  be  sacrificed.  In  this 
situation  it  appears  likely:  (i)  That  the  trust  could 
lower  the  price  of  flax  seed  at  its  will,  and  (2)  that  the 
harm  done  to  the  grower  of  flax  would  be  mitigated  by 
the  fact  that  the  seed  is  an  alternative  product,  and 
the  burden  might  be  ultimately  shifted  in  part,  at 
least,  to  the  buyers  of  flax  fibre.  But  the  fibre  itself 
enters  into  so  many  finished  products  that  there  is 
no  immediate  prospect  of  a  monopoly  large  enough 
to  include  them  all,  and  a  monopoly  of  any  one 
product  could  not  control  the  price  of  flax  to  the 
great  damage  of  the  producers  of  it. 

Or  we  might  take  an  illustration  from  the  tobacco 


46  THE   CONTROL  OF  TRUSTS 

industry.  A  trust  in  cigarettes  alone,  or  in  plug  to- 
bacco alone,  may  be  viewed  by  the  growers  with  un- 
concern, but  let  it  extend  to  cigarettes,  cigars,  plug 
tobacco  and  snuff,  and  Kentucky  swarms  with  armed 
^'night-riders"  in  the  attempt  to  enforce  a  growers' 
counter-monopoly  and  so  to  fight  fire  with  fire. 

Again:  a  monopoly  of  all  iron  and  steel  manufacture 
would  control  the  iron  ores,  and  the  independent  mine- 
owner  might  see  his  royalties  completely  swallowed  up. 
On  the  other  hand,  a  monopoly  in  the  making  of  shoes 
would  not  be  able  so  to  manipulate  the  price  of  leather, 
since  that  is  used  for  harness,  for  belting  and  for  many 
other  purposes.  Its  action,  however,  might  to  some 
extent  depress  the  price  of  leather  and  if  so  this  would 
he  one  factor  in  its  gains. 

/^"^  Another  factor  which  is  of  great  importance  in  pro- 
J  tecting  the  public  from  the  worst  consequences  of 
monopoly  is  the  fact  that  if  a  single  great  consolidation 
controlled  the  output  of  many  kinds  of  products,  it 
would  not  find  it  desirable  to  raise  prices  as  much  as  a 
single  monopoly,  making  one  product  only,  would 
naturally  raise  them.  If  we  can  for  a  moment  suppose 
that  the  dream  of  some  Socialists  were  realized  and 


COMBINATION  VERSUS  MONOPOLY  47 

that  an  all-embracing  trust  had  been  formed  which 
should  control  the  output  of  every  product  put  upon 
the  market,  it  would  not  be  for  its  interest  to  curtail 
its  product  at  all.  If  taxing  consumers  were  in  view, 
a  single  man,  living-Crusoe-like  and  producing  every- 
thing that  he  consumed  could  harm  nobody  but 
himself  by  producing  little  instead  of  much;  and  if  we 
regard  a  consolidated  trust  as  virtually  in  the  same 
position,  it  could  only  impoverish  itself  by  pursuing 
the  same  policy.  If  there  were  not  a  single  consolidated 
company,  but  many,  each  of  which  had  completely 
monopolized  one  particular  product,  then  any  product 
curtailing  operations  which  they  might  undertake  would 
only  impoverish  each  other  and  any  effective  pooling 
or  any  effective  secret  understanding  would  prevent 
them  from  resorting  to  it.  If  a  cotton  trust,  a  woolen 
trust,  a  steel  trust,  a  sugar  trust,  a  tobacco  trust, 
a  whisky  trust,  and  so  on  through  the  list,  were  one  and 
all  reducing  their  products,  they  would  be  preying  upon 
each  other  and  the  interests  of  all  would  demand  that 
they  should  stop  it. 

Note.  (This  is  a  bit  of  pure  theory  and  even  so  is  only  very  partially 
stated.   In  a  regime  in  which  trusts  were  universal  there  would  be  very 


48  THE  CONTROL  OF  TRUSTS 

grave  and  highly  intricate  questions  arising  between  employers  and 
employed.  Moreover  the  pools  that  the  trusts  would  try  to  form  with 
each  other,  would  encounter  much  graver  difficulties  than  would  pools 
between  independent  producers  of  a  single  article — such  pools  as  we 
actually  find  in  the  market.  It  would  affect  the  employers  disastrously 
to  curtail  the  output  of  cheap  and  necessary  goods  while  leaving  the 
output  of  articles  of  luxury  unaffected.  The  entire  relation  of  employ- 
ers and  employed  would  be  one  of  almost  insuperable  difficulty  under 
such  circumstances,  which  fortunately  are  in  no  great  danger  of  being 
realized.) 


The  whole  importance  of  introducing  such  a  wild 
supposition  as  that  of  a  single  trust  producing  every- 
thing, or  a  pool  of  distinct  trusts  doing  so,  arises  from 
the  fact  that  the  gains  accruing  to  a  large  number  of 
real  monopolies  from  turning  off  employees  and  shut- 
ting up  mills  cannot  be  as  large  as  can  the  gains  accru- 
ing to  a  few  trusts  from  the  same  policy.  When  there 
is  a  large  public  to  plunder,  the  gains  are  great,  and  when 
there  is  a  small  public,  the  gains  are  small.  It  is  a  case 
of  one  shearer  with  a  flock  of  sheep  versus  a  flock  of 
shearers  with  one  sheep.  On  the  other  hand  it  goes 
without  saying  that  the  state  of  the  sheep  grows  worse 
and  worse  as  the  shearers  multiply.  The  policy  that 
needs  to  be  adopted  should  keep  us  many  leagues  on 
the  hither  side  of  such  an  evil  as  a  general  regime  of 
monopoly,  and  we  do  not  need  to  think  of  its  coming 


COMBINATION  VERSUS  MONOPOLY  49 

as  anything  but  a  very  remote  contingency;  but  what  is 
important  is  that  every  step  we  take  in  that  direction 
makes  the  condition  of  the  pubUc  worse,  although  the 
rate  of  gain  made  by  each  one  of  the  multiplying  monop- 
oHes  grows  somewhat  smaller  as  their  number  increases. 


CHAPTER  III 

HOW  NOT  TO  DEAL  WITH  TRUSTS 

Irresponsible  attacks — Public  ownership  not  a  present  issue — Dangers 
of  sweeping  abolition  of  protective  duties — Our  protective  system 
is  unreasonable — Principles  that  should  govern  reforms — Inde- 
pendents should  be  safeguarded  against  clubbing  by  our  trusts  if 
tariff  revision  is  to  bring  the  best  results — Our  industries  not  equal 
in  their  relative  ability  to  stand  foreign  competition — Effect  of 
duties  equalizing  costs  of  production,  with  a  margin  to  allow  for 
producers  who  have  not  yet  reached  standard  efficiency — ^The 
question  of  reciprocity — Business  men  may  favor  it  to  enlarge 
their  foreign  trade,  if  the  chance  of  making  monopoly  gains  in  the 
home  market  is  taken  away — Importance  of  preserving  home 
competition  in  connection  with  tariff  reform. 

The  legal  treatment  of  trusts  has  seemed  to  be  in- 
spired by  the  maxim  "when  in  doubt,  hang  the  pris- 
oner." Fierce  prohibitions  have  abounded  in  the  leg- 
islation of  our  states  concerning  these  combinations, 
while  only  in  a  few  cases  have  the  specific  acts  which 
make  them  outlaws  been  defined  and  forbidden. 

Meanwhile  a  general  belief  prevailed  that  such  laws 

would  not  be  executed  and  there  was  no  positive  proof 

that  if  they  were  so,  the  result  would  be  good  for  the 

so 


HOW  NOT  TO  DEAL  WITH  TRUSTS  5 1 

public  welfare.  The  country  took  its  chance  of  what 
would  happen  as  a  result  of  the  enactments,  and 
administrations  made  a  merit  of  the  effort  to  enforce 
them.  The  Montana  verdict,  that  a  man  deserved 
hanging  for  shooting  another  by  accident,  inasmuch 
as  "in  such  matters  a  man  should  know  his  own  mind" 
seems  to  be  applicable  here,  for  a  country  should  know 
its  own  mind  before  destroying  an  institution. 

There  is  one  not  wholly  unintelligent  reason  for  a 
wavering  course  'of  action,  and  that  is  the  very  belief 
which  has  just  been  stated  that  the  drastic  laws  will  not 
work.  It  is  safer  to  turn  our  guns  on  the  supposed  en- 
emy if  they  are  loaded  with  blank  cartridges  than  it  is 
if  they  are  loaded  with  ball  cartridges,  and  it  is  this 
fact  which  explains,  in  part,  the  light  hearted  way  in 
which  Americans  have  put  upon  statute  books  laws 
which  aim  to  crush  the  great  consolidations.  They  may 
have  done  one  important  work  before  they  were  enacted, 
when  they  were  nothing  but  planks  in  political  plat- 
forms. Severe  measures  have  at  least  been  good  for 
the  parties  that  promised  them,  and  so  long  as  it  was 
probable  that  they  would  not  be  workable,  there  was  no 
great  danger  of  enacting  them  into  laws.     Political 


52  .    THE  CONTROL  OF  TRUSTS 

platforms  have  required  prohibitive  statutes  with  pains 
and  penalties  attached  to  them. 

It  now  appears  that  one  law,  at  least,  namely  the 
Sherman  Act,  is  not  a  dummy;  and  if  it  were  ever  an 
intelligent  policy  to  enact  a  measure  which  we  had  no 
expectation  of  enforcing,  it  is  highly  unintelUgent  to 
keep  it  on  the  books  unless  we  now  mean  to  enforce  it. 

Of  the  measures  which  it  is  possible  to  take  in  deal- 
ing with  trusts,  some  have  only  to  be  stated  to  be  re- 
jected and  among  these  is  the  immediate  acquirement 
by  the  Federal  Government  of  the  plants  belonging  to 
them  and  the  management  of  their  business  in  the  name 
of  the  people.  The  party  which  regards  this  as  an  ul- 
timate ideal  cannot  be  disregarded,  but  very  few  are 
actually  working  for  the  immediate  execution  of  such 
a  sweeping  measure.  Into  the  question  of  the  ultimate 
claims  of  complete  Socialism  we  do  not  need  to  enter. 

The  policy  of  letting  the  trusts  alone  and  allowing 
them  to  work  their  will  has  far  smaller  support  than 
that  of  making  their  business  over  to  the  government. 
The  latter  has  support  from  a  certain  number  of  rea- 
sonable people,  but  it  is  not  imminent;  and  this  book 
has  space  only  for  what  conceivably  may  be  so. 


HOW  NOT  TO  DEAL  WITH  TRUSTS  53 

There  is  another  list  of  measures  which  have  more 
support,  and  within  this  list,  it  is  well  to  apply  a  rule  of 
exclusion.  Some  of  the  measures  will  almost  certainly 
not  be  adopted  and,  by  eliminating  these  at  once,  we 
can  save  thought  and  effort  for  policies  that  have  more 
in  their  favor. 

The  Treatment  of  Protective  Duties 

There  is  a  small  party  which  favors  a  sweeping  abo- 
lition of  all  protective  duties  and  would  like  to  bring 
it  about  at  the  earliest  practicable  moment.  They  be- 
lieve in  this  measure  on  grounds  that  are  independent 
of  its  effect  on  monopoly;  but  this  effect  has  lent  them 
a  new  and  powerful  argument  in  favor  of  their  general 
policy.  To  abolish  all  duties  on  goods  produced  by 
trusts  would  be  a  long  step  in  the  direction  of  completely 
free  trade.  It  would  be  necessary  to  reduce  duties  on  a 
very  extensive  scale  in  order  to  accomplish  the  purpose 
of  an  anti-trust  measure.  To  expose  some  combinations 
to  the  full  force  of  foreign  competition  and  continue  to 
protect  others  would  be  so  far  from  solving  the  problem 
that  the  gain  thus  made  would  scarcely  be  worth  the 
disturbance  and  the  risk  it  would  cost.    Totally  to  abol- 


54  THE  CONTROL  OF  TRUSTS 

ish  very  many  duties,  on  the  other  hand,  would  seem 
to  people  generally  like  taking  a  hazardous  leap  into  a 
gulf  of  uncertainties;  and  then,  if  it  should  turn  out  that 
some  of  the  duties  sustained,  not  merely  trusts,  but  in- 
dustries themselves — if ,  after  the  abolition  of  the  duties, 
the  making  of  the  articles  should  become  unprofitable — 
a  very  costly  reconstruction  of  the  business  of  the 
country  would  have  to  be  made.  Without  going  into 
the  question  of  whether,  if  this  were  done,  it  would  ul- 
timately give  us  a  better  system  or  a  worse  one,  we  can 
decide  at  once  that  whatever  crushes  out  a  number  of 
departments  of  business,  destro)dng  much  capital 
and  throwing  much  labor  into  idleness,  will  cost  too 
much  to  be  justifiable  in  view  of  any  future  and  uncer- 
tain gain.  There  is  much  to  be  said  against  the  wisdom 
of  allowing  a  protective  system  to  grow  up  at  all;  but 
when  it  has  once  grown  up,  there  is  not  much  to  be  said 
in  favor  of  abolishing  it  immediately  and  completely. 
The  industries  that  are  still  in  some  degree  dependent 
on  it  have  a  certain  right  to  be  considered;  and  experi- 
ence shows  that  they  have  no  difficulty  in  securing  all 
the  consideration  which  they  are  entitled  to. 
\  Saying  this,  however,  is  as  far  as  possible  from  deny- 


HOW  NOT  TO  DEAL  WITH  TRUSTS  55 

ing  that  important  changes  in  our  system  of  import 
duties  are  eminently  desirable.  The  question  is,  on  what 
principle  shall  the  changes  be  made?  And  if  we  define 
duties  as  bad  whenever,  to  a  majority  of  people,  they 
seem  unreasonable,  we  shall  find  that  the  definition 
gives  us  very  much  to  abolish.  There  is  very  much  of 
our  protective  system  that  appeals  to  almost  every  un- 
prejudiced person  as  utterly  unreasonable.  There  is  no 
justifying  a  duty  imposed  on  the  ground  of  the  cheaper 
labor  of  Europe  but  amounting  to  more  than  the  total 
cost  of  labor  anywhere.  Americans  have  become 
weary  of  paying  much  more  for  our  own  manufactures 
than  Europeans  pay  for  them,  and  they  find  it  a  costly 
mode  of  subsidizing  export  trade.  There  is  something 
to  be  said  for  a  poUcy  which  charges  high  prices  at  home 
and  low  prices  in  foreign  countries;  but  there  are  limits 
beyond  which  this  poHcy  carries  on  its  face  the  proof 
of  unreasonableness. 

It  is  beginning  to  seem,  on  prima  facie  grounds,  un- 
reasonable to  try  to  win  foreign  markets  for  our  own 
goods,  while  refusing  to  admit  foreign  goods  in  exchange 
for  them.  It  goes  without  saying  that  exports  are  paid 
for  mainly  by  imports,  and  we  cannot  long  send  away 


56  THE  CONTROL  OF  TRUSTS 

our  goods  in  exchange  for  nothing  but  money  and  se- 
curities. If  traffic  began  in  this  way,  it  would  soon  reach 
a  point  at  which  selling  goods  would  have  to  mean  buy- 
ing goods;  and  this  fact  should  make  us  lop  off  now 
one  and  now  another  feature  of  the  protective  system. 
It  has  already  caused  manufacturers  to  look  with  favor 
on  reciprocity  treaties. 

There  is  a  scientific  way  of  dealing  with  import  duties, 
and  we  cannot  expect  to  find  and  adopt  it  without  mak- 
ing sure  of  the  relation  of  the  tariff  to  the  problem  of 
monopoly.  Duties  do  something  for  the  trust  that  ex- 
ists within  an  industry;  but  they  also  do  something  for 
the  independent  producers  who,  with  the  trust,  con- 
stitute the  industrial  group  as  a  whole.  They  likewise 
affect  the  potential  producers,  the  men  who  are  not  yet 
in  the  field  but  will  be  so  if  inducements  enough  are 
offered.  As  the  independent  producer  and  the  potential 
one  are  both  factors  in  the  solution  of  the  trust  problem, 
the  tariff  problem  is  bound  up  with  that  of  dealing  with 
monopolistic  corporations. 

Without  letting  ourselves  be  carried  as  far  afield  as  a 
study  of  the  problem  of  protection  would  carry  us,  we 
may  put  down  a  few  principles  as  nearly  self  evident. 


^       \0^  .  HOW  NOT  TO  DEAL  WITH  TRUSTS  57 

(i)  Wherever  there  is  a  trust,  there  is  an  independent 
producer  also  to  be  considered.  He  may  be  now  in  the 
field  or  he  may  merely  stand  ready  to  enter  it,  provided 
that  he  can  so  secure  a  return  for  his  capital  and  labor. 

(2)  This  independent  producer  should  be  subjected 
to  fair  competition,  but  not  to  unfair  and  predatory  at- 
tacks by  his  powerful  rivals. 

(3)  If  he  is  shielded  from  this,  his  presence  or  a  pros- 
pect of  it  affords  an  important  protection  for  the  pub- 
lic. 

(4)  If  the  public  shall  protect  itself  by  thus  keeping 
competition  alive,  it  can  make  changes  in  the  tariff 
in  the  wisest  way. 

(5)  The  wise  changes  would  not  proceed  with  a  view 
to  crippling  the  business  of  the  monopoly.  The  business 
itself  is  worth  preserving  and  would  be  preserved  if 
there  were  no  trusts  in  existence.  It  is  possible,  while 
reducing  duties,  to  avoid  crippling  the  business  and 
yet  to  render  an  essential  service  to  the  public  and  as- 
sist in  solving  the  problem  of  monopoly. 

(6)  Duties  can  be  so  gauged  as  to  exclude  the  for- 
eigner so  long  as  the  price  of  the  American  product 
is  reasonable  and  call  the  foreigner  in  when  the  American 


58  THE  CONTROL  OF  TRUSTS 

price  becomes  extortionate.    This  is  by  far  the  best  way 
of  establishing  a  rule  of  maximum  prices. 

(7)  If  there  is  potential  competition  supplemented 
by  a  fairly  large  amount  of  actual  competition,  it  is  safe 
to  expect  that  the  American  prices  will  be  thus  reason- 
able and  that  a  moderate  amount  of  protection  will 
give  to  the  American  products  their  own  market. 

(8)  With  duties  at  the  moderate  rate  which  permits 
foreign  competition  whenever  the  American  price  be- 
comes extortionate,  the  trust  has  a  much  smaller  in- 
centive for  crushing  independent  rivals.  It  cannot 
recoup  itself  for  the  cost  incurred  in  the  price  cutting 
warfare  by  the  extravagant  profits  which  it  can  make, 
if  the  foreigner  is  altogether  excluded. 

Conclusion 

An  adjustment  of  protective  duties  is  the  most  prac- 
ticable, as  it  is  the  most  scientific  measure  for  establish- 
ing maximum  prices.  They  may  be  so  adjusted  as  to 
protect  the  independent  producer,  lend  efficiency  to 
potential  competition  and  so  accomplish  what  is  the 
first  essential  in  dealing  with  trusts.  They  may  keep 
prices  below  an  extravagant  level  without  exposing  the 


HOW  NOT  TO  DEAL  WITH  TRUSTS  59 

public  to  the  risks  and  to  certain  unendurable  evils 
which,  as  we  shall  see,  would  attend  the  direct  regula- 
tion of  general  prices  by  the  government  itself. 

The  truth  of  these  propositions  will  appear  as  the 
argument  proceeds.  What  they  signify  is  that  it  is 
of  vital  importance  to  keep  competition  alive,  if  we  are 
to  deal  in  a  right  way  with  our  protective  system,  and 
that  proper  adjustment  of  protection  will,  in  turn,  help 
us  to  keep  competition  alive.  We  can  solve  the  prob- 
lem of  monopoly  without  instantly  changing  the  tariff, 
but  when  we  do  make  such  changes  as  are  called  for, 
we  shall  both  make  the  solution  more  complete  and 
get  more  general  advantages.  The  reductions  would 
do  good  in  themselves  if  no  monopolies  existed.  Con- 
trol the  trusts,  then,  and  take  the  monopoUstic  ele- 
ment out  of  them.  Reform  the  tariff  as  soon  as  you 
can,  and  this  will  make  the  control  of  the  trusts  more 
easy  and  complete.  It  will  afford  the  best  method  of 
putting  a  limit  on  the  raising  of  prices. 


6o  THE   CONTROL  OF  TRUSTS 

Summary 

What,  now,  are  the  present  facts?  The  country  is  full 
of  great  corporations,  some  of  which  have  much  gen- 
uinely monopolistic  power.  They  are  sheltered  by  a 
/  tariff,  that  enables  them  to  put  on  American  consumers 
the  "fixed  charges"  of  their  business,  and  thus  to  sell 
goods  to  foreigners  more  cheaply  than  they  sell  them 
at  home.  These  companies  virtually  collect  from  their 
/  customers  in  this  country  a  subsidy  for  the  mainten- 
(  ance  of  an  export  trade.  Inevitably  a  demand  is  made 
that  duties  which  enable  them  to  do  this  shall  be  en- 
tirely repealed.  If  this  demand  were  complied  with, 
we  should  find  ourselves  without  protection  for  a  great 
variety  of  manufactured  articles,  but  with  protection 
for  raw  materials.  It  would  reverse  the  traditional 
plan,  of  building  up  manufacturing  business,  and  would 
be  a  kind  of  tariff  reform  that  would  injure,  not  merely 
the  trusts,  as  menacing  powers  within  their  several 
industries,  but  the  industries  themselves,  including 
the  independent  producers  whom  we  need  to  encourage. 
Such  a  proposal  would  cause  a  struggle  of  classes  in 
which  this  independent  producer,  who  is  the  natural 


HOW  NOT  TO  DEAL  WITH  TRUSTS        6 1 

friend  and  protector  of  the  public,  would  be  on  the  side 
of  the  combination  and  against  the  reformers.  Success 
in  the  movement  could  be  gained  only  by  the  use  of 
enough  crude  force  to  overpower  monopolist  and  free 
competitor  alike. 

Abolish  all  duties  on  trust-made  articles  and  in  a  few 
cases  you  will  produce  no  permanent  evil  effects  for  the 
country  as  a  whole.  Some  branches  of  manufacturing 
have  undoubtedly  reached  a  stage  in  which,  with  no 
protection,  the  American  makers,  while  getting  fair 
returns,  can  hold  their  markets  against  foreigners.  No 
foreign  competition  can  force  such  producers  to  reduce 
prices  to  the  profit-annihilating  point.  This,  moreover, 
is  the  situation,  not  of  exceptional  and  highly  favored 
manufacturers,  but  of  the  majority  in  some  trades. 
Does  any  one  suppose  that  the  production  of  steel, 
for  instance,  would  be  much  reduced  in  America  even 
if  that  product  were  made  quite  duty  free?  If  the 
price  could  be  held  just  below  the  importing  point, 
and  still  yield  normal  dividends  on  the  real  capital  in-  j 
vested,  then  this  business  would  still  thrive  and  render  / 
the  largest  possible  service  to  the  country. 

From  this  condition  of  fortunate  independence  in- 


62  THE  CONTROL  OF  TRUSTS 

dustries  shade  off  into  varying  degrees  of  dependence 
on  protective  duties.  In  some  branches  the  most 
efficient  shops  could  hold  their  own  against  foreigners, 
while  others,  less  efficient,  would  have  to  retire  from  the 
field.  In  few  cases  would  all  the  establishments  be 
crushed,  but  in  many  cases  there  would  be  a  large 
mortaHty,  and  some  shops  that  are  now  fighting  their 
way  toward  success  might  find  their  career  abruptly 
ended.  PossibiHties  of  this  kind  are  clearly  enough 
before  the  pubhc  mind  to  prevent  the  aboHtion  of 
all  protection  on  articles  that  really  need  it.  There 
are  few  measures  against  which  the  country  is  safer 
than  it  is  against  a  sweeping  abolition  of  import 
duties. 

If  costs  were  uniform,  steady  and  quite  ascertain- 
able, there  would  be  a  simple  rule  for  tariff  reduction. 
It  would  be  entirely  reasonable  and  also  practicable 
to  reduce  each  duty  to  an  amount  that  just  equals 
or  barely  exceeds  the  difference  in  cost  between  the 
American  and  the  foreign  article.  Find  out  accurately 
how  much  the  owner  of  an  American  mill  has  to  spend 
in  creating  his  product,  ascertain  with  the  same  accur- 
acy how  much  the  European  spends  for  his  and  make 


HOW  NOT  TO  DEAL  WITH  TRUSTS  63 

the  duty  on  the  completed  article  about  equal  to  the 
difference  between  the  two  sums.  To  favor  the  home 
producer  the  duty  might  be  a  shade  more  than  this 
difference,  since  the  European  can,  even  then,  place  his 
goods  on  the  American  market  at  an  outlay  which, 
when  duties  are  paid,  does  not  much  exceed  the  outlay 
incurred  by  his  American  rival.  The  two  will  then  be 
nearly  on  an  equal  footing,  and  success  will  come  to 
the  one  who  improves  his  processes  most  rapidly  and 
combines  economy  in  making  goods  with  effectiveness 
in  advertising  and  selling  them.  The  pubHc  will  gef 
the  benefit  of  the  rivalry  in  economical  production,  and 
will  buy  its  goods  at  the  maximum  of  cheapness.  The 
adjustment  will,  moreover,  favor  the  American  maker; 
for,  if  the  costs  of  production  on  the  two  sides  of  the 
Atlantic  decHne  together,  the  difference  between  the  costs 
will  grow  less.  When  the  American  goods  cost,  in  the 
making,  little  more  than  the  European  there  will  be  a 
larger  margin  of  gain  in  selling  them  at  the  European 
cost  plus  the  duty.  A  reformed  tariff  is  entirely  con- 
sistent with  prosperity  for  American  mills. 

At  the  beginning  it  is  necessary  to  allow  a  margin  of 
profit  to  be  made  by  every  highly  efficient  producer. 


64  THE   CONTROL  OF  TRUSTS    t 

The  costs  in  America  and  in  Europe  cannot  be  ascer- 
tained with  perfect  exactness;  and  if  the  duty  is  in- 
tended surely  to  cover  the  difference  between  them, 
it  must  be  fixed  at  a  slightly  larger  figure  than  the  one 
that  expresses  the  apparent  difference.  Moreover, 
costs  vary  in  different  shops;  and  in  practice  the  most 
economical  one  in  this  country  would  certainly  not  be 
taken  as  the  standard  for  comparison.  To  do  that 
might  sacrifice  a  less  efficient  man.  If  this  latter  pro- 
ducer is  hopelessly  outdone  in  the  race  for  cheapness, 
he  should  be  thus  sacrificed,  since  in  the  end  he  is  cer- 
tain to  fail  as  a  result  of  normal  competition  with  Ameri- 
can rivals.  It  is  far  from  being  for  the  public  good  to 
tax  consumers  for  the  support  of  an  establishment 
that  will  run  forever  in  a  wasteful  way.  The  only  es- 
tablishment that  is  entitled  to  consideration  is  the  one 
which  has  before  it  the  prospect  of  increasing  success, 
but  has  not  yet  attained  it — the  one  which  is  well 
equipped,  but  has  not,  as  yet,  used  its  appliances  most 
effectively  or  won  a  market  for  its  goods.  Possibly 
its  internal  organization  has  not  been  perfected,  though 
it  is  showing  improvement.  Many  a  new  establishment 
goes  through  a  period  in  which  technical  experimenting 


HOW   NOT  TO  DEAL  WITH   TRUSTS  65 

is  inevitable  and  costly;  and  that  potential  producer, 
to  whom  we  have  before  referred  as  the  agent  who 
puts  a  curb  on  the  exactions  of  the  trust,  has  before  him, 
whenever  he  plans  to  enter  the  field  as  an  actual  com- 
petitor, the  prospect  of  facing  such  initial  difficulties. 
An  adjustment  that  takes  the  potential  competitor 
into  consideration  will  be  apt  to  leave  enough  of  the 
present  duty  on  his  product  to  cover  the  difference, 
not  merely  between  the  costs  that  he  will  incur  when  his 
efficiency  shall  he  fully  developed  and  those  incurred  by  a 
European  rival,  but  also  the  difference  between  his 
earlier  and  somewhat  larger  outlay  and  the  European 
standard. 

On  all  accounts  the  calculation  of  the  present  excess 
of  costs  incurred  by  Americans  over  those  incurred  by 
foreigners  needs  to  be  made  on  a  more  or  less  liberal 
scale.  Without  retaining  the  absurd  duties  that  now 
protect  the  American,  a  poHcy  which  takes  the  situation 
as  we  find  it  and  tries  to  change  it  in  a  reasonable  way, 
will  leave  enough  of  the  duty  untouched  to  protect 
the  establishments  which  are  now  running  with  a  fair 
degree  of  economy.  This  poHcy  would  be  a  desirable 
one,  if  there  were  no  trusts  in  existence;  and  it  may  be 


66  THE  CONTROL  OF  TRUSTS 

even  more  desirable,  in  view  of  the  growth  of  these  mo- 
nopolistic companies. 

The  chance  of  actually  carrying  out  this  policy  will  he 
much  greater  than  it  now  is  after  we  have  succeeded  in 
regulating  trusts  by  a  different  set  of  measures.  If  we  take 
away  their  chance  of  monopolizing  the  home  market 
and  see  to  it  that  they  have  effective  rivalry  here, 
their  prices  will  reach  a  reasonable  level  and  they  will 
have  nothing  to  fear  from  a  reduction  of  duties  to  a 
like  reasonable  standard.  The  smaller  duty  will  ex- 
clude the  foreigner,  who  will  no  longer  have  the  lure 
of  an  exorbitant  American  price,  and  the  American  man- 
ufacturer will  join  in  the  demand  for  a  reduction  of 
duties  on  raw  materials  and  on  products  which  he  does 
not  make. 

After  a  long  period,  during  which  very  little  tariff 
reform  of  any  kind  has  been  obtainable,  we  find  our- 
selves where  two  contrasted  types  of  it  present  them- 
I  selves  as  possibihties.  There  is,  first,  the  abolition  of 
the  duties  on  finished  goods  and  the  retention  of  thoseon 
raw  materials.  This  is  simply  an  anti-monopoly  meas- 
ure, which  takes  grave  risks  for  the  sake  of  curbing  the 
power  of  great  corporations.    There  is,  again,  the  policy 


HOW  NOT  TO  DEAL  WITH  TRUSTS  67 

of  reciprocity,  which  admits  with  low  duties  or  none  j 
at  all  many  products  of  foreign  countries,  for  the  sake  j 
of  making  markets  for  our  own  exportable  goods.  This 
plan  would  certainly  insure  a  sound  commercial  ex- 
pansion. Will  the  general  public  favor  it?  If  mo- 
nopolies can  be  curbed  without  changes  in  the  tariff, 
the  probable  answer  is.  Yes — ^much  reciprocity  can  be 
secured  if  prices  of  products  made  in  the  United  States 
are  kept  within  bounds  in  the  way  that  has  so  long  been 
rehed  on,  namely,  by  competition  in  the  home  market. 

If  a  corporation  can  exact  a  really  monopohstic  price 
for  goods  that  it  sells  at  home,  it  may  treat  its  export 
business  as  of  secondary  consequence.  It  may  prefer 
to  accept  reduced  orders  from  abroad,  rather  than  ac- 
cept lower  prices  for  the  goods  sold  at  home.  There 
may  be  larger  gains  to  be  had  from  high  prices  in  the 
home  trade  than  from  any  practicable  expansion  of 
the  volume  of  the  foreign  trade.  The  trust  will  then  op- 
pose any  reduction  of  the  duties  that  enable  it  to  main- 
tain here  the  unnaturally  high  prices. 

A  monopoly  will  demand  all  the  protection  it  can  get, 
since  this  will  enable  it  to  maintain  exorbitant  prices 
without  fear  of  foreign  rivals;  and  American  rivals 


68  THE  CONTROL  OF  TRUSTS 

are  already  disposed  of.  What  will  it  do  if,  in  ways 
that  are  independent  of  the  tariff,  its  monopolistic  power 
is  broken?  If  competition  still  acts  at  home  and  brings 
prices  to  their  normal  level,  will  there  be  any  motive 
for  fighting  against  a  reasonable  reduction  of  duties? 
On  the  contrary,  a  sound  policy  will  favor  it.  With 
monopoly  profits  on  the  sales  made  at  home  definitely 
lost,  the  foreign  markets  will  then  be  of  greater  import- 
ance, and  a  policy  of  reciprocity  that  will  gain  admission 
to  them  for  the  goods  that  are  coming  in  such  abimdance 
from  our  own  mills  will  be  lucrative.  Gains  will  come 
from  large  sales  at  natural  prices,  rather  than  from  small 
sales  at  unnatural  ones.  Trusts  can  thrive  on  the  plan 
.that  will  gain  larger  markets  for  them  and  can  well  afford 
to  accept  a  reduction  of  duties  on  their  own  products 
whenever  foreigners  will  make  similar  concessions. 

Our  manufacturers  never  wish  to  meet  foreign  com- 
petition in  America;  but  the  country  has  fostered  their 
business  in  the  hope  they  can  ultimately  do  it,  and  most 
of  them  can  certainly  do  it  with  the  aid  of  the  limited 
protection  that  has  been  described  above.  Inventions 
may  be  made  and  organization  perfected  till  the  for- 
eigner can  be  safely  met,  first  here  and  then  even  on 


HOW  NOT  TO  DEAL  WITH  TRUSTS  69 

his  own  territory;  and  he  can  then  certainly  be  met  on 
much  neutral  territory.  Lower  duties  on  raw  materials 
and  efficient  competition  in  our  own  country  will  afford 
conditions  of  a  great  expansion  of  industry. 

Among  the  possibilities  of  the  near  future  is  a  status 
in  which  trusts  shall  be  displaced  from  their  vantage 
ground  of  monopoly  and  the  prices  of  their  goods  shall 
be  brought  to  a  natural  level.  They  will  then  be  safe 
against  foreign  rivalry  and  anxious  for  foreign  out- 
lets. They  cannot  rely  on  excessive  prices  for  their 
products  sold  in  America,  as  in  effect  affording  a  sub- 
sidy on  the  foreign  part  of  their  business,  and  there- 
fore all  economies  will  be  important  to  them  and  they 
will  welcome  reductions  of  duties,  if  only  these  apply  to 
raw  materials  as  well  as  to  finished  products.  Ifjthe' 
trusts  should  continue  to  be  quasi-monopolies,  they 
might  contest  every  foot  of  progress  toward  freer  trade; 
but  if  they  lose  the  monopolistic  position,  they  will  be 
likely  to  use  their  vast  power  in  promoting  it. 

Of  the  utmost  importance,  then,  is  the  rescuing  of 
competition  frnra...extinction;  for  not  only  does  this 
create  the  conditions  for  healthy  progress  in  all  the 
practical  arts,  but  it  also  affords  the  key  to  success  in 


70  THE  CONTROL  OF  TRUSTS 

solving  problems  of  commercial  expansion.  Inventions 
will  follow  each  other  in  brilliant  succession,  new  forces 
of  nature  will  be  pressed  into  service  and  the  earning 
power  of  labor  will  go  steadily  upward,  provided  only 
that  an  effective  competition  shall  be  kept  alive.  On 
the  farmers,  in  particular,  would  the  pressure  of  a 
monopolistic  power  rest  heavily,  and  the  rescuing  of 
competition  in  manufactures  means  an  assured  gain 
for  agriculture.  The  same  means  will  rescue  and  ex- 
tend foreign  trade. 

With  the  preservation  of  competition  is  bound  up 
that  general  progress  in  things  economic  on  which  hang 
the  hopes  of  every  class  of  men. 


CHAPTER  IV 

MONOPOLIES  AND  THE  LAW 

Growing  moderation  in  law-making — Safeguarding  investors — ^The 
holding  company  a  means  by  which  large  capital  is  controlled  by 
small  inside  groups — ^Too  much  combination  leads  to  loss  of  effici- 
ency— Managing  industries  for  the  profits  of  promotion  and  stock 
speculation — Importance  of  publicity  as  a  remedy — Other  classes 
than  investors  needing  protection — Survival  of  the  fit  vs.  survival 
of  the  strong — Railroad  discriminations  caused  by  competition 
of  carriers,  while  the  law  forbids  pooling,  which  would  remove 
this  motive — Simpler  to  permit  pools  and  regulate  charges  in  the 
case  of  railroads — Communities  of  interest  between  carriers  and 
other  industries  a  further  source  of  favoritism — The  problem  of 
preserving  water  competition  from  railroad  domination — Import- 
ance of  settling  these  questions  as  preliminaries  to  attacking 
industrial  monopoly  more  directly. 

In  dealing  with  this  problem,  it  might  be  expected 
that  theory  would  be  bold  and  practice  conservative. 
In  fact,  however,  actual  law-making  began  by  going 
to  the  extreme  of  boldness,  while  economic  theory  held 
the  more  moderate  way.  The  law  is  apparently  about 
to  take  the  latter  course.  Making  laws,  however, 
is  not  "practice"  in  the  full  sense;  and  in  fact,  the 
more  drastic  the  laws  have  been  the  less  has  been  done 


72  THE  CONTROL  OF  TRUSTS 

in  enforcing  them.  The  statutes  have  registered  a 
crude  notion  of  what  ought  to  be  done;  but  the  action 
they  have  called  for  has  been  of  the  over-bold  kind, 
while,  for  a  time,  the  action  that  was  taken  was  more 
nearly  nil.  The  Sherman  Act  interpreted  "in  the  light 
of  reason"  calls  for  a  policy  that  it  is  certainly  possi- 
ble to  carry  out;  and  we  shall  try  to  show  that  it 
is  the  general  course  indicated  by  economic  prin- 
ciples. 

The  policy  of  the  future  is  well  in  sight;  and  it  involves 
supplementing  the  recent  procedure  under  the  Sherman 
Law  in  a  very  important  way  without,  however,  en- 
gaging in  indiscriminate  attacks  on  big  business  as  such. 
Because  of  this  it  should  receive  strong  support  as  soon 
as  its  effectiveness  shall  be  generally  realized,  since 
the  people  will  never  recede  from  their  demand  for  the 
suppression  of  real  monopoly. 

In  the  making  of  laws  we  shall  incidentally  do  what 
is  undeniably  important — that  is,  improve  the  or- 
ganization of  the  trust  itself,  and  especially  give  pro- 
tection to  investors.  In  most  trusts  there  are  internal 
evils  that  require  attention.  There  is  far  too  much 
centralizing  of  power  within  the  corporations  themselves 


MONOPOLIES  AND  THE   LAW  73 

and  the  real  owners  may  be  victims  of  a  policy  pursued 
by  the  managers.  We  can  help  to  protect  the  public 
by  ensuring  to  the  trust  a  sounder  organization,  for  it 
should  not  be  overlooked  that  it  is  at  present  a  very 
imperfect  thing.  It  is  composed  of  a  body  of  stock- 
holders, a  few  of  whom  are  promoters  and  directors, 
and  in  theory  all  of  its  proceedings  are  for  the  benefit 
of  the  stockholders.  If  this  were  the  practical  fact, 
the  great  issue  would  lie  between  the  trust  as  a  whole 
and  the  public.  As  it  is,  however,  there  is  a  more  im- 
mediate issue  between  the  manipulators  and  the  stock- 
holders. The  investor  is,  at  present,  in  some  danger 
of  being  the  most  conspicuous  of  all  the  trust's  victims, 
and  measures  for  the  protection  of  the  honest  and  in- 
nocent men  whose  money  is  lured  out  of  safe  places 
into  perilous  ones  should  come  early  in  the  order  of 
time,  as  they  do  in  point  of  importance. 

It  happens,  fortunately,  that  the  very  things  which 
will  protect  the  share  holder  will  injure  neither  con- 
sumers, nor  laborers,  nor  producers  of  raw  material, 
but  will  contribute  toward  the  protection  of  all  these 
classes.  In  this,  there  is  complete  harmony  between 
the  policy  that  stands  guard  over  honest  capital  which 


74  THE  CONTROL  OF  TRUSTS 

is  attracted  to  a  position  of  danger,  and  the  policy  that 
protects  the  general  public. 

There  is  one  institution,  a  bad  product  of  recent 
development,  for  which  no  good  words  should  be  said, 
and  very  few  are  said.  It  is  the  "holding  company" 
so  called,  and  is  diabolically  perfect  as  a  means,  first, 
of  concentrating  the  control  of  many  corporations 
in  a  single  one  and,  secondly,  of  concentrating  the  con- 
trol of  that  single  company  in  a  small  minority  of  the 
real  owners  of  the  capital  and  the  business  over  which 
they  have  sway.  It  sometimes  puts  property  belong- 
ing to  a  vast  number  of  owners  at  the  disposal  of  a  very 
insignificant  minority  and  because  of  its  bad  perfection 
in  creating  monopolies,  which  injure  consumers,  and 
in  building  up  little  oligarchies  within  the  monopolistic 
corporations,  and  so  injuring  honest  capitaHsts,  it  finds 
few  so  mean  as  to  do  it  reverence. 

It  is  not  long  since  legislators  looked  askance  at  all 
corporations  and  chartered  them  with  reluctance. 
If  they  had  foreseen  that  artificial  persons  of  this  kind 
would  ultimately  be  created  to  control  large  groups  of 
other  artificial  persons  and  the  fortunes  of  a  myriad 
of  investors,  they  would  have  waited  long  before  as- 


MONOPOLIES  AND  THE  LAW  /S? 

sen  ting  at  all  to  the  creation  of  incorporated  com- 
panies. In  view  of  the  jealous  regard  which  the  founders 
of  the  republic  had  for  the  rights  of  states,  the  con- 
stitutions of  American  commonwealths  would  have 
contained  provisions  against  the  creation  by  any  one 
of  them  of  companies  able  to  play  reckless  games  with 
capital  belonging  to  citizens  of  the  others.  As  it  is, 
some  states  have  specialized  in  the  making  of  charters 
which  are  virtually  letters  of  marque  and  authorize 
quasi-piracy  carried  on  in  other  states.  The  inter- 
state tariff  wars,  against  which  the  federal  consti- 
tution became  a  barrier,  would  not,  in  principle,  vio- 
late the  spirit  of  that  document  more  clearly  than  do 
some  of  these  corporations. 

The  relation  of  the  holding  companies  to  the  country 
as  a  whole  is  fully  as  objectionable  as  is  the  relation  of 
the  promoters  and  directors  of  them  to  investors,  and 
this  affords  an  equally  decisive  motive  for  bringing  their 
existence  to  an  end  as  soon  as  this  can  be  done  without 
unduly  disrupting  business.  Nothing  is  simpler  than 
this  means  of  uniting  rival  corporations  under  one 
control  and  then  excluding  the  great  body  of  owners 
from  all  power  over  them.    First,  inflate  the  capital 


76  THE  CONTROL  OF  TRUSTS 

of  the  original  and  constituent  companies  until  the 
common  stock  is  mostly  water;  then  organize  a  new 
corporation  to  buy  the  majority  of  that  water,  and  the 
thing  is  done.  How  much  real  money  does  the  water 
cost?  That  determines  the  amount  that  the  holding 
company  requires.  It  may  be  secured,  however,  by 
floating  bonds;  and  if  so,  the  holders  of  a  bare  major- 
ity of  the  shares  of  its  own  common  stock  will  have  the 
control  of  the  entire  property  of  the  original  corpora- 
tions. Of  any  law  that  is  framed  to  create  holding 
companies,  that  may  be  said  which  was  said  by  an  Eng- 
lish gentleman  of  the  roast  beef  which  was  served  at  his 
table;  "It  is  as  bad  as  bad  can  be;  ill  bought,  ill  fed, 
ill  killed,  ill  cooked,  ill  dressed!"  No  argument  is 
needed  to  make  a  case  against  it;  and  it  is  sufficient 
here  to  point  out  the  fact  that  the  incentive  for  form- 
ing such  companies  would  be  removed  if  it  were  enacted 
that  the  shares  of  industrial  companies  owned  by  hold- 
ing companies  should  have  no  voting  power.  It  would 
doubtless  suffice  for  the  end  immediately  in  view  if  all 
the  shares  held  by  such  a  company  were  counted  as  a 
single  share  for  voting  purposes.  The  holding  company 
then  could  be  many  times  outvoted  by  other  stockhold- 


MONOPOLIES  AND   THE   LAW  77 

ers.  Of  the  constitutional  questions  which  the  entire 
policy  of  trust  regulation  presents  it  is  not  the  province 
of  this  small  treatise  to  speak;  but  the  adoption  of  some 
rule  akin  to  those  suggested  could  be  insisted  upon  be- 
fore either  a  federal  charter  or  a  federal  license  should 
be  issued  to  a  corporation  doing  an  interstate  business. 
There  is  a  further  weakness  of  consolidated  com- 
panies which  comes  from  their  great  size  and  the  di- 
versity of  the  establishments  which  they  control. 
An  overgrown  trust  is  not  as  efficient  as  one  of  more 
manageable  size.  An  early  impression  was  that  a  major- 
ity of  our  trusts  were  thus  overgrown  and  would  fail 
from  inferior  management.  This  impression  no  longer 
exists;  and  yet  it  is  probably  true  that  an  efficient  in- 
dependent producer  can  often  excel  the  trust  in  manage- 
ment. The  great  corporation  resembles  the  wolf  in  the 
Russian  story.  As  members  of  a  pack  of  forty  were  shot 
one  at  a  time  by  the  occupants  of  the  sleigh  they  were 
pursuing,  each  victim  was  devoured  by  his  comrades; 
and  when  the  number  was  reduced  to  one,  the  survivor 
had  virtually  eaten  his  thirty-nine  mates.  It  was  not 
necessary  to  shoot  him  since  he  wobbled  in  his  gait, 
and  fell  out  of  the  race,    A  trust  that,  as  the  saying  goes, 


78  THE  CONTROL  OF  TRUSTS 

has  "swallowed"  thirty-nine  competitors,  cannot  be 
in  the  most  healthy  condition,  unless  its  powers  of  di- 
gestion and  assimilation  are  nearly  unlimited.  Its 
plants  include  all  kinds,  the  decrepit  and  badly  placed 
together  with  those  well-located  and  up-to-date.  Its 
management  is  often  inferior,  not  only  to  that  of  an 
efficient  independent  company,  but  to  that  of  some 
of  the  companies  which  were  absorbed  by  it. 

A  promoter  is  not  usually  a  good  manager,  either  by 
experience  or  by  interest.  His  purpose  is  attained  when 
he  has  formed  the  consolidation,  received  his  pay  and 
his  slice  of  the  stock  and  realized  on  this  in  the  market. 
He  probably  could  not  manage  it  if  he  would,  but  pretty 
surely  he  would  not  if  he  could;  and  having  formed  the 
combination  he  is  apt  to  leave  it  mainly  to  its  own  de- 
vices. He  has  great  facilities  for  manipulating  the  value 
of  stock  in  the  companies  he  controls,  and  he  can  al- 
ways utilize  the  machinery  of  the  stock  exchange  in 
gathering  in  the  profits  so  made.  When  making  and 
selling  goods  does  not  pay,  "milking"  the  stock  market 
may  do  so;  and  in  the  case  of  directors  who  are  bold 
enough  and  bad  enough  to  wreck  the  corporations,  this 
operation  sometimes  overtops  all  others  in  profitable- 


MONOPOLIES  AND  THE   LAW  79 

ness  to  themselves;  but  alas  for  investors,  not  only  in 
this  corporation  but  in  others,  since  the  example  of 
quick  profits  gained  by  bad  means  is  only  too  con- 
tagious. 

What  the  stockholder  in  a  trust  needs  before  all 
things  is  security.  He  wants  to  have  the  corporation 
make  money  by  producing  goods  and  selling  them  for 
more  than  they  cost.  The  public  also  wants  efficient 
production  and  when  a  trust  makes  money  the  public 
is  interested  in  seeing  that  money  go  to  owners  and  not 
to  managers  at  the  cost  of  owners;  for  when  the  gains  go 
to  the  owners  it  may  be  in  consequence  of  something 
that  is  good  and  not  bad  for  the  public.  It  may  come 
through  the  technical  excellence  of  the  product  which 
is  turned  out  or  the  efficient  machinery  which  is  used 
in  making  it.  There  is  the  sharpest  line  of  division 
between  all  legitimate  interests  and  those  of  the  specu- 
lative director  who  finds  his  account  in  manipulating 
the  stocks  of  his  own  corporation. 

When  there  are  so  many  persons  demanding  sound 
business  management  of  corporations,  and  no  one 
openly  opposing  it,  there  ought  not  to  be  any  difficulty 
in  securing  whatever  legislation  gives  promise  of  seciu"- 


8o  THE  CONTROL  OF  TRUSTS 

ing  the  desired  result;  and  moreover  one  measure  would 
assuredly  contribute  to  the  success  of  such  an  effort, 
namely  publicity.  The  trusts  must  stand  the  turning 
of  light  on  their  internal  affairs.  The  public  must 
know  what  plants  they  own,  what  they  gave  for  them, 
what  they  are  worth  at  present,  for  how  much  they  can 
be  duplicated,  what  appliances  they  contain,  whether 
antiquated  or  modern;  in  short,  what  is  the  substantial 
basis  of  the  stocks  and  bonds  that  the  companies  place 
on  the  market.  Even  this  knowledge  is,  at  present, 
inaccessible  and  the  investor  who  puts  his  money  into 
the  trust  must  guess,  as  best  he  can,  what  property  he 
is  getting.  The  guess  is  apt  to  be  a  bad  one  for  him, 
and  the  publishing  of  such  business  facts  as  have  just 
been  specified  would  not  only  remove  the  greatest  evils 
from  stock  watering,  but  would  put  an  important  check 
on  the  manipulating  of  values.  An  investor  who  knows 
that  there  is  only  one  dollar  of  property  back  of  five 
dollars  of  stocks  and  bonds  may  be  able  to  buy  the 
securities  at  a  discount  from  par  that  will  make  him 
safe.  In  any  case  he  will  buy  them,  if  at  all,  with  his 
eyes  open  to  the  essential  facts.  Publicity  here  is  the 
key  to  success. 


MONOPOLIES  AND   THE  LAW  8l 

When,  however,  the  investor  shall  have  been,  if  not 
protected,  at  least  placed  where  he  can  protect  him- 
self, the  graver  difficulties  connected  with  the  regu- 
lation of  trusts  will  begin.  It  is  not  for  the  harm  that 
they  do  to  the  men  who  own  them,  even  though  these 
men  may  pay  too  much  for  the  ownership,  that  monop- 
olies are  chiefly  dreaded.  It  is  for  the  harm  that  they 
threaten  to  do  the  consuming  public,  the  farmer  and  the 
laborer.  Consumers  are  in  danger  from  high  prices;  v>*> 
all  laborers  who  are  not  subsidized  by  the  trusts  are  in 
danger  from  reduced  wages,  and  large  classes  of  agri- 
culturists are  in  danger  from  depressed  returns  for  prod- 
ucts which  are  raw  materials  of  manufacture.  The 
trust  may  pay  its  own  operatives  well;  but  it  may  close 
mills  and  force  some  employees  into  other  occupations, 
and  it  may  compel  some  farmers  to  sell  what  they  pro- 
duce in  a  restricted  and  unfavorable  market.  There  are, 
indeed,  four  parties  who  have  a  common  interest  in 
curbing  monopolies,  namely,  the  independent  producer, 
the  consumer,  the  unprotected  laborer  and  the  farmer. 
To  protect  the  first  of  these  four  is  to  protect  them  all. 
If  the  rival  producer  cannot  be  crushed,  the  consumer, 
the  laborer  and  the  farmer  are  far  better  off.    More- 


82  THE  CONTROL  OP  TRUSTS 

over,  as  laborers  and  farmers  are  also  consumers,  they 
get  double  benefits.  Both  have  something  to  sell  and 
something  to  buy;  and  they  can  get  better  terms  in  both 
operations  if  independent  production  goes  on  freely 
and,  at  need,  can  go  on  more  freely.  When  this  is  true 
the  farmer  will  no  longer  be  made  to  take  low  prices  for 
the  raw  materials  that  he  has  to  sell,  and  the  laborer 
who  is  not  tied  in  interest  to  the  trust  itself,  will  no 
longer  suffer  with  the  rest  through  a  reduction  of  his 
pay.  No  one  will  suffer  by  artificially  high  prices  for 
the  necessities  and  comforts  of  life.  All  this  may  be 
realized,  and  the  approaches  to  it  will  be  realized  in 
proportion  as  these  consolidations  lose  the  monopolistic 
power  that,  to  some  extent,  they  now  possess. 

The  key  to  the  solution  of  the  grave  problems  that 
are  thus  presented  lies  in  the  fact  just  cited — that  the 
independent  producer  is  the  natural  protector  of  all  the 
other  threatened  interests.  If  the  trust  cannot  crush 
him,  it  can  neither  tax  consumers  nor  mulct  farmers 
nor  depress  the  general  rate  of  pay  for  labor.  Goods 
will  be  produced  at  normal  prices,  and  all  who  help 
to  make  them  will  get  normal  returns,  so  long  as  com- 
petition is  kept  alive  and  efficient. 


MONOPOLIES  AND   THE   LAW  83 

But  it  is  not  easy  to  keep  competition  in  vigorous 
life.  The  great  company,  as  has  been  shown,  has  ways 
of  clubbing  the  men  who  are  bold  enough  to  enter  the 
arena  with  it.  This  is  not  done  by  the  old  and  familiar 
plan  of  reducing  costs  and  underbidding  the  inefficient 
producers.  That  is  a  part  of  an  old  and  estabhshed 
order  of  things.  The  economic  organism  has  become 
efficient  as  it  is  because  capable  producers  have  sur- 
vived and  others  have  perished.  The  process  has,  in- 
deed, had  its  serious  hardships.  We  have  been  appalled 
by  the  inexorable  fate  which  hangs  over  every  employer 
who  cannot  get  out  of  labor  and  capital  as  large  a  prod- 
uct as  his  rivals  are  getting;  but  for  society  as  a  whole 
there  is  gain  from  displacing  him.  The  hope  of  an  end- 
less increase  of  productive  power — of  a  perpetual  rise 
in  the  level  of  economic  Ufe — ^lies  in  the  continued  action 
of  this  law  of  survival,  by  which  only  the  best  servants 
of  mankind  are  retained. 

At  present  the  situation  is  the  reverse  of  this.  The 
interests  of  the  public  itself  are  now  threatened  by  the 
destruction  of  competing  producers.  This  is  because  it 
is  no  longer  the  inefficient  only  who  are  in  danger  of  being 
crushed.   It  is  often  not  the  unfit,  but  the  particularly  fit 


84  THE  CONTROL  OF  TRUSTS 

that  fail  to  survive.  The  competing  power  that  threat- 
ens to  destroy  them  depends,  as  we  have  said,  not  on 
economy  in  production,  but  on  special  and  unfair  fight- 
ing powers  which  great  size  gives.  The  really  efficient 
producer,  the  man  who  can  make  goods  even  more 
cheaply  than  the  trust  can  make  them,  is  now  in  peril; 
and  it  is  this  man  who  must  at  all  hazards  be  kept  in  the 
field.  We,  the  people,  must  use  the  law  to  protect  him, 
as  he  uses  his  economic  power  to  protect  us. 

Now,  the  country  has  rightly  acted  on  the  supposition 
that  the  first  thing  to  be  done,  in  thus  guarding  our 
guardian,  is  to  secure  for  him  fair  treatment  by  railroads. 
If  the  trust  gets  a  rebate  which  he  cannot  get,  it  has  him 
at  its  mercy.  It  may  ruin  him,  even  though  he  may  be 
able  to  make  goods  more  cheaply  than  any  producer 
in  the  country.  Moreover,  it  is  the  prohibition  of  pool- 
ing by  the  railroads  themselves  that  subjects  them  to 
the  temptation  to  make  the  discriminating  charges. 
In  a  pool  they  would  have  no  reason  for  trying  to  lure 
away  from  each  other  the  traffic  of  the  large  shippers. 

It  recently  seemed  to  be  true  that  the  attempt  to 
preserve  competition  among  common  carriers  had  gone 
far  toward  extinguishing  it  among  manufacturers.   Com- 


MONOPOLIES  AND   THE   LAW  85 

peting  railroads,  a  struggle  for  the  business  of  large 
producers,  secret  rebates  to  such  producers,  the  ex- 
tinction of  small  rivals  and  an  approach  to  monopoly 
in  many  branches  of  production — this  is  the  series  of 
phenomena  that  we  have  witnessed.  Railroads  in  tol- 
erated pools,  regulated  charges  and  a  fair  field  for  the 
small  producers — this  is  the  alternative  series;  and  it 
is  the  one  that  we  have  partially  realized  and  must 
realize  more  completely  unless  we  are  driven  to  a  much 
bolder  course,  namely,  the  giving  over  of  railroads  to  the 
government. 

An  exceptional  functionary  is  the  common  carrier, 
and  we  shall  be  forced  to  deal  with  him  as  we  shall  not 
deal  with  others.  His  position  is  strategic,  and  we  can- 
not long  allow  it  to  be  used  in  a  way  that  creates  monop- 
oly in  the  remainder  of  the  economic  field.  Without 
pretending  in  this  small  work  to  deal  to  any  extent  with 
the  problems  of  transportation,  we  record  the  belief  that 
within  any  period  that  we  can  now  take  account  of, 
they  will  be  settled,  not  through  government  owner- 
ship, but  rather  by  government  regulation. 

In  what  respects  does  our  present  scheme  of  regu- 
lation fall  short  of  complete  effectiveness?    The  most 


86  THE  CONTROL  OF  TRUSTS 

obvious  and  generally  recognized  defect  in  it  is  the 
anti-pooling  regulation,  which  persists  apparently  out 
of  regard  for  the  strong  popular  feeling  against  all 
forms  of  monopoly.  But  this  feeling,  sound  though  it 
be,  is  misdirected  in  the  present  case,  for  it  has  long  been 
established  that  competition  of  railroad  carriers  leads 
to  monopolies  among  shippers,  through  the  discrimina- 
tions which  it  causes.  Whatever  of  competition  still 
survives — whatever  effort  the  roads  still  make  to  lure 
traffic  from  one  another — still  affords  them  an  incentive 
for  secret  rebates  to  shippers  strong  enough  or  shrewd 
enough  to  conmiand  them,  on  threat  of  turning  their 
shipments  to  rival  roads.  The  stringent  penalties  now 
in  force  have  apparently  stamped  out  most  of  the 
simpler  forms  of  rebating,  but  this  need  not  obscure  the 
fact  that  violation  of  the  law  would  be  less  profitable, 
and  subtle  evasions  less  prevalent,  if  the  roads  were 
allowed  of  their  own  accord  to  end  the  competition 
which  is  the  source  and  motive  of  it  all.  In  the  early 
days  when  roads  were  still  able  to  pool  their  earnings 
from  competitive  traffic,  there  was  nothing  to  be  made 
by  rebates,  and  stringent  legal  penalties  were,  in  such 
cases,  superfluous. 


MONOPOLIES  AND   THE   LAW  87 

If  we  were  ready  to  let  competition  thus  end  itself 
by  means  of  pools,  we  should  then  have  to  protect  the 
public  against  charges  that,  in  an  all-around  way,  might 
be  too  high.  Indeed,  we  are  confronted  with  the  pre- 
liminary symptoms  of  such  a  condition  even  now,  but 
pooling  would  probably  bring  it  upon  us  niore  quickly. 
The  issue  will  be  clearly  drawn,  as  was  shown  in 
the  recent  legal  battle  over  the  concerted  rate-increases 
of  the  railroads  covering  the  whole  north-central  region 
of  this  country.  It  may  take  a  supreme  effort  to 
prescribe  and  enforce  fair  rates,  but  the  outcome  of 
this  first  engagement  seems  to  show  that  the  govern- 
ment has  enough  power  and  also  is  disposed  not  to  be 
tyrannical  in  exercising  it.  In  governmental  regulation 
of  the  general  level  of  prices  one  chief  danger  lies  in  the 
limiting  of  earnings  to  a  hard-and-fast  percentage  on  cap- 
ital invested,  with  the  result  of  removing  the  incentive 
to  that  increase  of  efficiency  from  which  both  operators 
and  public  might  make  mutual  gains.  It  is  refreshing 
to  note  that  our  officials  seem  to  be  avoiding  this  rule- 
of-thumb  pitfall,  and  recognizing  the  fact  that,  in  the 
last  analysis,  "A  reasonable  return  is  one  which  under 
honest  accounting  and  responsible  management  will 


88  THE  CONTROL  OF  TRUSTS 

attract  the  amount  of  investors'  money  needed  for  the 
development  of  our  railroad  facilities."* 

With  all  the  problems  which  this  doctrine  involves, 
it  still  offers  a  simpler  task  than  that  of  forcing  compet- 
ing lines  to  treat  all  shippers  alike.  The  law  can  pro- 
tect the  whole  pubHc  against  a  generally  high  scale 
of  charges  more  easily  than  it  can  protect  a  small  ship- 
per against  special  favors  accorded  to  his  powerful  rival. 

However,  competition  of  carriers  is  not  the  only 
source  of  favoritism.  Another  that  is  coming  into 
more  and  more  prominence  is  the  fact  that  carriers 
compete  with  their  own  customers,  and  wherever  that 
occurs  there  is  the  strongest  possible  motive  to  take 
some  form  of  unfair  advantage.  A  coal  road  owning 
mines  that  sell  their  coal  in  competition  with  independ- 
ent miners,  an  ore  road  owned  by  a  steel  corporation 
over  which  its  competitors  also  ship  ore,  a  pipe-line 
belonging  to  one  oil  refiner  and  on  which  competing 
refiners  depend  to  carry  their  oil,  a  private  car-line 
owned  by  a  large  packing-house:  to  expect  any  and  all 
of  these  to  do  their  whole  duty  as  common  carriers  is 

*  Report  of  Railroad  Securities  Commission,  62nd  Congress,  2nd 
session,  House  Document  No.  256,  p.  34. 


MONOPOLIES  AND  THE   LAW  89 

to  demand  too  much  of  human  nature.  The  opportu- 
nity for  gaining  a  subtle  advantage  is  too  great,  the 
temptation  too  overwhelming. 

If  the  line  is  congested  and  some  one's  cars  must  be 
delayed,  who  will  be  first  to  suffer?  If  cars  are  scarce, 
who  will  get  first  chance  at  the  available  supply?  If  a 
pipe-line  does  not  want  to  act  as  a  common  carrier  for 
all  producers  alike,  are  laws  and  commissions  strong 
enough  to  compel  it  to  render  genuinely  equal  services, 
to  all?  In  fixing  rates,  which  the  company  may,  as  a 
carrier,  demand  alike  from  itself  as  a  shipper,  and  from 
the  independents,  will  those  rates  be  fixed  as  low  as  if 
the  road  were  merely  interested  in  developing  the 
traffic  on  its  line?  If,  by  the  simple  device  of  shifting 
money  from  one  pocket  to  the  other,  the  road  can  exact 
unreasonable  tribute  from  such  independents  on  all 
their  shipments,  is  it  human  to  refrain?  The  rates 
might  not  be  so  excessively  high  that  they  could  be 
proved  unreasonable  before  commissions  or  courts,  and 
yet  be,  in  reality,  a  discrimination  of  substantial  effect 
against  the  unfortunate  outsider. 

This  is  a  problem  which  our  laws  have  not  yet  set- 
tled, although  a  beginning  has  been  made  in  the  much- 


go  THE  CONTROL  OF  TRUSTS 

interpreted  "commodities  clause''  of  the  Hepburn  Act 
of  1906.  This  act  attempts  to  prevent  any  railroad 
from  carrying,  in  competition  with  independents, 
articles  "in  which  it  may  have  any  interest,  direct 
or  indirect."  By  the  judicial  construction  of  the  act, 
however,  they  may  hold  stock  in  the  corporations  which 
own  coal,  lumber  or  other  commodities.  A  great  major- 
ity of  such  stock  may  apparently  be  held,  if  only  they 
avoid  common  boards  of  directors  and  other  features 
which  would  convince  the  court  that  their  separate 
corporate  existence  is  a  mere  sham.  As  thus  con- 
strued, the  act  has  so  far  failed  to  carry  out  the  purpose 
of  its  framers.  To  accompUsh  this  purpose  completely, 
the  holding  of  considerable  blocks  of  stock  in  such  out- 
side corporations  would  have  to  be  forbidden,  as  most 
people,  including  the  federal  circuit  court,  supposed  they 
had  been  forbidden  by  the  law  of  1 906 .  This  prohibition 
might  be  held  to  be  unconstitutional — indeed  the  Cir- 
cuit Court  has  already  so  held  it — and  in  that  case  some 
other  way  must  be  found  to  reach  the  goal.  The  Su- 
preme Court  has  made  us  stop  for  second  thought 
and  to  look  for  another  way  out,  but  meanwhile  the 
same  condition  still  confronts  us.    And  it  is  not  clear 


MONOPOLIES  AND  THE  LAW  9I 

that  there  is  any  other  effective  way  to  remove  all  those 
communities  of  interest  between  carriers  and  certain 
of  their  customers  which  now  furnish  a  more  insidious 
motive  to  favoritism  than  the  mere  competition  of  car- 
riers with  each  other. 

Such  favoritism  is  unusually  hard  to  prevent  by 
mere  laws  against  discrimination,  because  it  can  be 
effected  without  the  crude  methods  of  rebating,  or  of 
charging  different  people  at  the  same  place  different 
rates  for  the  same  service.  "Personal  discrimination'* 
is  easy  to  define  and  forbid;  but  if  the  persons  ship  from 
different  stations,  and  especially  if  they  use  slightly 
different  routes,  the  same  result  may  be  gotten  under 
a  more  innocent  guise.  Local  differentials  are  reasonable 
and  are  needed  to  allow  for  many  different  circumstances 
of  traffic  and  operation,  and  such  differentials  may  con- 
ceal a  vast  deal  of  undue  personal  advantage,  without 
reaching  such  a  point  that  the  real  motive  and  effect 
could  be  clearly  proved  to  a  commission  or  a  court. 
The  conditions  in  the  carriage  of  petroleum  products 
revealed  by  the  report  of  the  Commissioner  of  Cor- 
porations in  1905  are  such  as  to  drive  home  this  fact 
most  forcibly  to  the  least  prejudiced  mind.    The  prob- 


92  THE  CONTROL  OF  TRUSTS 

lem  of  the  alliance  between  manufacturers  and  carriers 
is  still  unsolved. 

Equally  unsolved  is  the  problem  of  the  relation  be- 
tween railroads  and  water  routes.  Water  carriage, 
imlike  the  railroad  business,  is  naturally  competitive, 
for  the  high  seas  and  all  navigable  waters  are  free  to 
all.  But  without  the  use  of  docks  this  freedom  is  but 
an  empty  phrase,  and  it  is  being  borne  in  upon  the  pub- 
lic mind  that  he  who  owns  the  terminals  need  not  bother 
to  acquire  title  to  the  sea,  just  as  in  the  arid  country  one 
who  should  own  the  water  need  not  care  who  owned  the 
land.  Moreover,  boat-lines  must  be  "fed";  they  must 
get  most  of  their  traffic  from  the  railways,  and  if  the 
roads  choose  not  to  feed  any  but  their  own  children, 
they  can  make  the  lot  of  the  independent  boat-line  a 
hard  one  indeed.  As  a  result,  the  control  of  railroads 
over  the  water  routes  has  reached  such  a  growth  that 
the  people  are  being  roused  to  strenuous  opposition, 
and  we  hear  of  proposals  that  the  Panama  Canal  should 
charge  a  higher  rate  of  toll  to  vessels  operated  in  the 
railroads'  interests,  in  order  that  this  route  at  least  may 
not  be  monopolized. 

Water  competition  should  be  preserved  wherever 


MONOPOLIES   AND  THE   LAW  93 

possible,  though  the  vengeful  method  just  suggested 
is  hardly  the  one  best  suited  to  the  needs  of  the  case. 
Competition  in  waterways  does  not  bring  the  same 
tendency  to  discrimination  that  is  seen  in  railway  com- 
petition. In  fact,  the  chief  kind  of  discrimination  to 
which  water  carriers  are  liable  is  the  sort  that  is  caused 
by  a  community  of  interest  between  the  carrier  and 
some  outside  business  venture.  Such  favoritism  is  the 
fruit  of  monopoly,  and  competition  between  carriers 
by  water,  far  from  increasing  it,  is  the  best  of  safeguards 


agamst  it. 


The  crux  of  the  problem  lies  in  the  attempt  to  secure 
to  all  the  independent  boat-lines  the  advantages  of  con- 
nections with  their  natural  railroad  feeders,  on  perfectly 
equal  terms,  irrespective  of  ownership.  Toward  this 
goal  we  seem  to  be  making  rapid  progress,  for  the  law 
already  requires  switch  connections  to  be  furnished  when 
the  traflSc  justifies  it,*  and  gives  to  the  Interstate  Com- 
merce Commission  power  to  prescribe  through  routes 
and  joint  rates  even  when  one  of  the  carriers  is  a  boat- 
line,  t 

However,  no  railroad  can,  under  this  act,  be  forced 
*  Act  of  1906.  t  Act  of  1910. 


94  THE   CONTROL  OF  TRUSTS 

to  include  in  such  a  through-route  "substantially  less 
than  the  entire  length  of  its  road  or  of  any  intermediate 
road  under  its  control."  If  a  railroad  boat-line  were 
held  to  be  an  extension  of  the  railroad  itself,  this  pro- 
vision would  fail  of  its  effect  in  supporting  water  com- 
petition, for  the  railroad  could  then  refuse  to  turn  traffic 
from  its  own  boat-line  to  that  of  a  competitor  and  thus 
would  still  be  able  to  extend  its  "natural  monopoly" 
over  water  as  well  as  land.  Moreover  the  mere  making 
of  a  joint  rate  is  no  guarantee  of  fairness,  unless  it  be 
also  made  sure  that,  in  dividing  the  rate  between  the 
two  interested  parties,  the  boat-Hne  gets  its  fair  share. 
And  the  dividing  of  joint  rates  is  a  matter  of  great 
complexity,  in  which  the  exact  sum  that  should  go  to 
each  company  is  very  difficult  for  an  outside  arbitrator 
to  determine  with  perfect  accuracy. 

However,  if  the  railroads  were  compelled  to  extend 
spur  tracks  and  make  joint  rates  to  all  on  equal  terms 
and  to  divide  the  joint  rates  fairly,  without  subterfuge  of 
any  kind,  and  if  equal  docking  facilities  were  assured  to 
all,  then  the  chief  handicap  would  be  removed,  and  the 
railroad  boat-lines  would  stand  or  fall  by  the  efficiency 
of  their  service  and  the  cheapness  of  their  rates.    Then 


MONOPOLIES  AND  THE   LAW  95 

we  should  find  no  need  of  subsidizing  independent  lines 
through  discriminating  canal  tolls  or  other  such  costly- 
devices,  having  given  them  a  fair  field  and  no  favor. 

However,  the  exact  methods  we  shall  follow  in  set- 
tling our  many  transportation  problems  is  a  thing  none 
may  presimie  to  predict.  The  one  thing  that  is  certain 
is  that  the  unequal  treatment  of  different  shippers  is 
an  evil  so  great  that  it  must  and  will  be  suppressed. 
When  that  is  done,  we  shall  find  ourselves  at  the  begin- 
ning of  more  serious  work.  There  will  remain  in  the 
hands  of  the  trust  weapons  by  means  of  which  it  can 
destroy  its  rivals.  To  take  away  all  of  them  may  not  be 
easy.  Though  the  solution  of  the  railroad  prqblem  is 
hard,  the  solution  of  the  remaining  part  of  the  problem 
of  monopoly  may  prove  harder;  but  recent  events  have 
shown  that  it  is  well  within  the  power  of  the  people, 
if  that  power  be  used  with  zeal  and  intelligence. 


CHAPTER  V 

MONOPOLIES  AND  THE  LAW: — DESTRUCTIVE  COMPETITION 

Need  of  suppressing  local  price-cutting  and  the  "factors'  agree- 
ment"— These  things  constitute  "restraint  of  trade" — Weak- 
nesses of  our  present  law  as  a  safeguard  against  them — Other 
laws  attack  them  directly,  including  those  of  some  of  our  own 
states — Laws  that  forbid  them  only  when  done  with  predatory 
intent,  vs.  absolute  and  universal  prohibitions — ^The  latter  may 
incidentally  help  to  preserve  tolerant  rivalry  between  all  large 
competitors — It  would  not  create  local  quasi-monopolies — Modi- 
fications of  the  system  possible — Railway  charges  can  be  adapted 
to  it — Advantages  of  this  and  wastes  under  present  methods — 
Further  forms  of  unfair  competition  must  be  met  by  an  elastic 
clause — Unfair  competition  is  an  evidence  of  monopolistic  character 
that  is  more  significant  than  mere  size. 

There  are,  as  we  have  seen,  certain  ways,  nearly  all 
now  well  known,  in  which  a  trust  can  crush  an  efficient 
competitor — the  man  who  is  producing  goods  cheaply 
and  who  normally  ought  to  survive.  It  may  make  use  of 
the  "factors'  agreement,"  by  which  it  gives  a  special  re- 
bate to  those  merchants  who  handle  only  its  own  goods. 
It  may  resort,  secondly,  to  the  famiHar  plan  of  cutting 
prices  locally — entering  its  rival's  special  territory  and 

selling  goods  there  below  the  cost  of  producing  them, 

96 


DESTRUCTIVE  COMPETITION  97 

while  sustaining  itself  by  means  of  higher  prices  charged 
in  other  portions  of  its  J&eld.  Again,  the  trust  may  de- 
pend on  the  cutting  of  the  price  of  some  one  variety 
of  goods  which  a  rival  producer  makes,  in  order  to  ruin 
him,  while  it  sustains  itself  by  means  of  the  high  prices 
which  it  gets  for  goods  of  other  kinds.  These  three 
things  alone  are  enough  to  make  the  position  of  a  com- 
petitor perilous,  and  they  are  such  important  features 
of  monopoHstic  strategy  that  the  suppression  of  them 
would  go  far  toward  rescuing  competition,  protecting 
the  pubUc  and  insuring  to  it  a  large  share  of  the  benefit 
that  comes  from  economies  in  production.  Independent 
mills  would  continue  to  be  built  and  would  be  equipped 
with  machinery  so  efficient  that  a  trust  would  have  to 
be  forever  on  the  alert  in  keeping  abreast  of  them. 
There  is  no  conceivable  condition  in  which  both  con- 
sumers and  laborers  would  find  their  interests,  present 
and  future,  so  well  fostered  as  one  in  which  corporations 
should  be  allowed  to  grow  to  great  size  without  let  or 
hindrance,  but  in  which  the  prices  of  their  goods  should 
be  forced  continually  downward  by  the  necessity  for 
meeting  both  possible  and  actual  rivalry. 
It  is  not  difficult  to  see  what  is  needed  in  order  to 


98  THE   CONTROL  OF  TRUSTS 

make  the  independent  competitors  thus  secure.  In  a 
fair  contest  for  survival  the  efficient  ones  can  protect 
themselves.  In  such  a  rivalr/  everything  depends 
on  mere  economy  in  production,  and  with  that  ensured 
they  may  well  be  subjectea  to  the  full  force  of  the  strug- 
gle. When  efficient  production  no  longer  sa^es  them, 
it  is  time  for  the  state  to  intervene;  and  it  needs  to  do 
this  if  it  would  carry  out  the  very  end  for  which  it  was 
originally  established — the  protection  of  property  it- 
self — by  the  suppression  of  refined  forms  of  robbery. 

The  factors'  agreement,  the  local  cut  in  prices  and 
the  illegitimate  breaking  of  a  general  scale  of  prices 
must,  then,  in  some  way  be  stopped.  If  laws  were  self- 
executing,  it  would  be  easy  to  stop  them.  These  un- 
fair acts  could  all  be  defined  and  forbidden;  but  few 
laws  would  encounter  more  opposition  both  in  the  mak- 
ing and  the  enforcing  than  would  these.  To  forbid 
the  factors'  agreement  is  virtually  to  order  the  trust 
to  sell  goods  to  any  customer  who  tenders  payment 
for  them;  such  an  order  would  certainly  not  be  wel- 
come and  it  might  remain  a  dead  letter  after  being  en- 
acted, while  merely  prohibiting  local  discriminations 
in  prices  might  have  no  better  result. 


DESTRUCTIVE   COMPETITION  99 

Both  of  these  things,  when  done  by  a  "combination" 
in  a  successful  campaign  to  repress  competition,  are 
now  unlawful,  since  they  tend  to  create  an  "unreason- 
able restraint  of  trade";  but  no  one  would  claim  that 
the  practices  do  not  anywhere  survive. 

There  are  two  weaknesses  in  the  situation  thus 
created.  In  the  first  place,  the  courts  have  not  had 
time  to  form  a  body  of  decisions  that  would  clearly 
show  just  what  sort  of  competitive  practice  they  will 
regard  as  unreasonable  and  where  the  line  will  be 
drawn.  Legal  precedents  grow  slowly,  one  decision 
contradicting  another,  and  although  these  practices 
have  been  in  evidence  for  two  or  three  decades — ^in- 
deed some  of  our  commonwealths  had  statutes  aimed 
at  predatory  price  cutting  twenty  years  ago — still  our 
body  of  doctrine  on  this  point  is  far  from  being  con- 
sistent or  complete. 

In  the  second  place  these  acts  are  not  made  illegal 
in  themselves,  but  only  when  a  monopohstic  combina- 
tion commits  them.  The  Sherman  Law  is  not  invoked 
until  it  is  believed  that  the  trust  has  already  achieved 
a  position  of  monopoly.  Then  its  past  history  is  probed, 
and  if  it  be  found  to  have  waged  "ruthless  war"  rather 


lOO  THE  CONTROL  OF  TRUSTS 

than  legitimate  competition,  that  fact  is  contributory 
evidence  making  condemnation  more  certain.  But  this 
usually  comes  too  late  to  help  the  former  rivals  over 
whose  dead  bodies  its  bad  eminence  has  been  attained. 
Their  case  is  often  comparable  to  that  of  the  philosophi- 
cal anarchist,  Ferrer,  whom  the  Spanish  authorities 
recently  exonerated  after  a  rehearing  of  his  case.  He 
was  clearly  entitled  to  damages,  and  could  no  doubt 
have  collected  them,  but  for  the  fact  that  he  had  been 
dead  for  more  than  two  years.  It  was  a  lucky  inde- 
pendent who  survived  long  enough  to  recover  damages 
from  the  American  Tobacco  Company,  after  that 
corporation  had  been  condemned  by  the  Supreme 
Court. 

The  situation  demands  that  such  acts  be  made  il- 
legal in  themselves,  whether  or  not  they  have  been  car- 
ried so  far  as  to  result  in  monopoly.  This  would  be  no 
new  experiment.  With  regard  to  local  price-cutting, 
Australia  and  New  Zealand  have  laws  to  protect  their 
own  industries  against  the  "dumping"  policy  of  foreign 
producers,  while  fifteen  of  our  own  states  have  laws 
aimed  to  prevent  the  predatory  cutting  of  prices,  as  dis- 
tinguished from  fair  competition.     Of  these  fifteen 


UMv.  or 


DESTRUCTIVE   COMl^l^TiTlbN'  '     ***  '  ***l6l 


states,  some  attack  discrimination,  some  forbid  the 
cutting  of  prices  unduly  low,  and  some  make  both 
practices  illegal.  Twelve*  of  them  forbid  discrimina- 
tion between  places  when  made  for  the  purpose  of 
destroying  competition,  and  one  f  attacks  general  dis- 
crimination by  coal  and  coke  dealers.  One  of  these 
states,  North  Dakota,  carries  the  anti-discrimination 
idea  to  its  logical  conclusion  by  compelling,  in  such 
cases,  the  sale  of  goods  to  all  persons  who  want  to  buy, 
and  who  comply  with  reasonable  regulations.  Ten- 
nessee goes  so  far  as  to  forbid  the  sale  of  goods  at  a 
price  below  the  cost  of  manufacture  for  the  purpose  of 
driving  out  competition,  and  Idaho  forbids  the  sale  of 
any  article  for  this  purpose  at  less  than  its  fair  mar- 
ket or  customary  value.  Three  other  states  {  not  only 
forbid  local  discriminations  but  also  forbid  the  cutting 
of  prices  below  cost,  or  below  a  fair  level,  for  the  pur- 
pose of  driving  out  competition. 

These  latter  clauses  would  seem  hard  to  enforce, 


*  Arkansas,  Iowa,  Kansas,  Minnesota,  Mississippi,  Missouri,  Ne- 
braska, North  Carolina,  North  Dakota,  Oklahoma,  South  Dakota  and 
Wyoming. 

t  Massachusetts. 

J  Mississippi,  Nebraska  and  North  Carolina. 


^0  viiiu 


I02  "SfBE  CONTROL  OF  TRUSTS 

as  they  virtually  amount  to  the  fixing  of  minimum 
prices.  Possibly  they  may  be  explained  by  the  fact  that 
a  law  which  forbids  discrimination  in  any  given  state 
would  not  prevent  a  trust  from  selUng  throughout  the 
state  at  cut  prices,  while  keeping  its  charges  up  over 
the  rest  of  the  country,  over  which  the  state  in  question, 
has  no  control.  A  federal  law  would  be  free  from  this 
difficulty,  and  could  gain  the  end  in  view  without  enter- 
ing the  field  of  price  regulation. 

One  thing  noticeable  about  these  state  laws  is  that 
none  of  them  go  to  the  full  length  of  forbidding  all 
discriminations  and  so  compelling  the  sale  of  all  goods 
at  one  price,  with  allowance  for  costs  of  carriage.  One 
and  all,  they  make  the  offense  hinge  on  the  purpose 
to  destroy  competition,  and  so  lay  on  the  courts,  in 
one  more  class  of  cases,  that  most  difficult  of  tasks,  the 
judging  of  the  presence  or  absence  of  maHcious  intent. 

Though  it  may  be  that  "intention  is  the  gist  of  every 
crime,"  still  it  is  always  a  clear  gain  when  the  act  can 
be  forbidden,  regardless  of  the  shades  of  sentiment 
and  motive  that  may  have  actuated  the  man  who  did  it. 
And  in  this  case  the  very  intention  itself,  which  would 
be  made  the  test  of  offense,  is  one  which  is,  in  a  limited 


•     tiki***  **tv- 


DESTRUCTIVE  COMPETITION  103 

sense,  perfectly  legitimate.  It  is  natural  to  want  to 
take  away  a  competitor's  business,  all  of  it  if  possible, 
and  so  long  as  this  is  done  by  fair  means  it  benefits 
society.  No  amount  of  pity  for  the  unfortunate  will 
make  us  take  up  the  burden  of  protecting  those  who 
cannot  hold  their  customers  in  any  rivalry  that  is  fair 
in  the  sense  that  the  best  man  wins.  The  victory  of 
the  efficient  is  something  society  cannot  afford  to  do 
without,  however  much  it  might  wish  to  spare  the 
vanquished.  So  that  in  this  case  it  is,  after  all,  the 
means  used  and  not  the  purpose  that  tilts  the  scale  of 
judgment  from  approval  to  condemnation,  and  "unfair 
competition"  comes  to  mean,  virtually,  any  practice 
whose  natural  result  is  to  make  survival  depend  on 
other  qualities  than  industrial  efficiency. 

There  is  another  reason  for  forbidding  price- 
discriminations  unconditionally  which  must  be  men- 
tioned here,  though  it  will  be  more  fully  developed  in  a 
later  chapter.  Even  when  discriminations  are  not  used 
by  a  would-be  monopoly  to  crush  a  small  rival,  even  be- 
tween equals,  they  tend  to  produce  the  condition  of  cut- 
throat competition,  in  which  prices  go  below  cost  of  pro- 
duction, so  that  combination  must  be  sought  as  a  refuge. 


.  '? 


I04  TEE   CONTROL  OF  TRUSTS 

This  condition  may  occur  without  any  predatory  purpose 
and  would  not  be  touched  under  the  prevalent  form  of 
the  law,  and  yet  it  is  just  as  important  to  prevent  cut- 
throat competition  between  equals  as  to  protect  the 
struggling  minor  rivals  from  being  unceremoniously 
sandbagged.  Both  things  are  equally  fatal  to  the  at- 
tempt to  create  such  healthy  conditions  as  will  give  the 
competitive  system  a  new  lease  of  Hfe. 

If  "the  state  of  nature  is  a  state  of  war/'  as  Hobbes 
conjectured,  then  even  despotism  may  be  preferable; 
and  if  we  believe  that  industrial  warfare  is  the  natural 
outcome  of  modern  competition,  we  may  tome  to  be- 
lieve in  monopoly  and  price-fixing,  as  Hobbes  believed 
in  absolute  monarchy,  by  force  of  necessity.  If  we  are 
to  avoid  this  radical  experiment,  we  must  bend  all  our 
energies  to  the  constructive  task  of  making  competition 
tolerable,  and  in  this  task  the  one-price  principle  bids 
fair  to  play  a  leading  part. 

For  if  we  propose  to  forbid  all  discrimination,  there 
is  only  one  system  that  will  be  adequate,  namely,  to 
charge  one  price  for  each  article,  no  matter  who  buys  it. 
This  price  would  have  to  be  quoted  at  the  factory, 
the  purchaser  paying  the  freight-rate,  otherwise  there 


DESTRUCTIVE  COMPETITION  IO5 

would  be  undue  favor  shown  to  distant  markets.  How- 
ever, certain  exceptions  could  well  be  made.  In  the  case 
of  light  and  valuable  goods  the  transportation  charge 
is  a  very  small  part  of  the  final  price,  and  might  be 
disregarded.  This  system  would  also  need  to  allow  for 
wholesale  prices  lower  than  those  charged  for  retail 
sales,  while  discounts  might  be  allowed  "to  the  trade" 
and  to  customers  paying  cash,  so  long  as  these  discounts 
were  uniform  and  were  published  as  are  railway  rates, 
to  be  known  and  used  by  all  on  equal  terms.  But  the 
principle  of  receiving  the  same  price  at  the  factory  on 
all  sales  of  the  same  article  would  necessarily  furnish 
the  basis  of  the  new  clubless  competition. 

This  has  been  objected  to  on  the  ground  that,  if 
strictly  applied,  it  would  mean  that  each  producer  would 
have  full  possession  of  the  markets  nearest  him,  com- 
petition would  be  active  only  on  the  frontiers  and  we 
should  lose  one  of  the  foremost  features  of  modern  busi- 
ness in  losing  the  equal  competition  of  all  large  pro- 
ducers over  very  wide  areas.  If  two  mills  were  compet- 
ing with  each  other,  there  would  be  one  place  between 
them,  and  only  one,  where  goods  from  either  factory 
would  cost  the  customer  the  same  amount,  including 


Io6  THE  CONTROL  OF  TRUSTS 

the  price  and  the  freight  rate.  If  we  move  from  this 
economic  midpoint  toward  either  of  the  factories,  one 
freight  rate  would  increase  as  the  other  diminished  and 
the  balance  would  be  destroyed.* 

This  objection,  however,  is  not  as  serious  as  it  might 
at  first  appear,  In  the  first  place,  it  has  force  only  in 
regard  to  goods  whose  value,  in  proportion  to  their 
weight,  is  so  low  that  the  freight  rate  forms  a  consider- 
able item.  And  even  in  such  cases,  it  does  not  necessa- 
rily follow  that  any  such  hard-and-fast  partitioning 


+  V- 


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*  Thus  in  the  accompanying  diagram,  the  heavy  vertical  lines  repre- 
sent the  prices  received  at  two  factories  located  at  A  and  B,  and  the 
sloping  lines  represent  the  increase  caused  by  the  freight-rates  as  the 
goods  are  sold  in  the  surrounding  country.  Evidently,  if  the  freight- 
rates  increase  with  distance,  there  can  be  but  one  point,  P,  of  exact 
equiUbrium.  Everywhere  else,  mill  A  will  either  have  an  advantage, 
represented  by  the  area  covered  with  plus-signs,  or  be  at  a  disadvantage 
represented  by  the  area  covered  with  minus-signs.  If  mill  B  lowers  its 
price,  it  merely  shifts  this  point,  as  represented  by  the  dotted  hne,  to 
the  point  Q.  The  result,  it  is  claimed,  might  be  a  series  of  partial  local 
monopolies  rather  than  a  field  in  which  every  consumer  has  his  choice 
of  several  producers  offering  their  goods  on  terms  of  equal  rivalry. 


DESTRUCTIVE  COMPETITION  107 

markets  would  take  place.  Since  customers  are  won  by 
being  convinced  of  the  quality  of  goods,  and  not  by 
price  alone,  there  are  comparatively  few  goods  so  per- 
fectly graded  and  standardized  that  a  few  score  miles  of 
freight  carriage,  more  or  less,  would  be  absolutely  de- 
cisive. What  retailer  would  hesitate  to  pay  a  few  cents 
extra  per  hundred  pounds  for  an  order  of  spool  silk  or 
dress  goods,  if  convinced  that  the  goods  were  apprecia- 
bly better  than  the  rival  brands,  and  would  sell  faster? 
On  most  manufactured  articles  the  freight  charges 
for  the  haul  from  the  factory  to  the  dealer  are  an  in- 
significant part  of  the  final  price.  To  quote  from  Mr. 
L.  G.  McPherson's  excellent  study  on  this  point:* 
"An  axe  made  in  the  Pittsburg  district  that  retails  in 
St.  Louis  for  $i  will  have  paid  the  railroads  one  and 
one-fourth  cents.  At  Kansas  City  that  same  axe  will 
have  paid  freight  of  a  fraction  over  four  cents  and  at 
Denver,  where  the  retail  price  will  have  advanced  to 
$1.30,  it  will  have  paid  14  cents  freight.  A  padlock 
retailing  in  St.  Louis  at  50  cents  will  have  paid  the  rail- 
roads a  little  more  than  one-half  cent;  at  Kansas  City 
it  will  have  paid  one  cent,  and  at  Denver,  where  the 
*  "Railroad  Freight  Rates,"  N.  Y.,  1909,  p.  51. 


I08  ■    THE  CONTROL  OF  TRUSTS 

retail  price  advances  to  75  cents,  it  will  have  paid 
two  cents  to  the  railroads.  ...  A  stove  that  weighs 
two  hundred  pounds  and  retails  in  St.  Louis  for  $18 
will,  in  carload  lots,  pay  44  cents  to  Kansas  City  or 
Omaha,  and  retail  there  for  $22;  $1.48  to  Denver  and 
retail  there  for  $25;  $2.50  to  Seattle,  and  retail  there  for 
$30.  When  a  housewife  of  St.  Louis  buys  a  dozen 
clothespins  she  has  paid  the  railroad  five  ten  thousandths 
of  a  cent.  If  she  buys  a  washboard  at  50  cents  she  has 
paid  the  railroad  forty-two  one  hundredths  of  a  cent. 
In  Denver  she  would  pay  for  that  washboard  60  cents, 
of  which  the  railroad  would  have  received  two  cents." 
In  such  cases,  one  factory  will  be  able  to  sell  goods, 
even  with  the  added  burden  of  the  freight  rate,  under 
the  very  walls  of  the  rival  mill,  if  there  are  any  custom- 
ers so  firmly  convinced  of  the  superior  qualities  of  his 
goods  that  they  are  willing  to  pay  a  slightly  higher  price 
rather  than  accept  a  substitute.  There  will  be  no  very 
sharp  geographical  divisions  of  the  field  in  selling  goods 
of  this  kind,  but  competition  may  be  expected  to  go  on 
much  as  it  does  now,  though  with  less  danger  of  abuses. 
Of  course  there  are  some  goods  so  heavy  or  bulky  in 
proportion  to  their  weight  that  the  freight  rates  would 


DESTRUCTIVE  COMPETITION  IO9 

make  a  big  impression  on  the  selling  price,  and  there 
are  other  goods  whose  qualities  are  so  well  known  and 
standardized  that  competition  centres  in  price  almost 
solely,  and  the  small  difference  due  to  railway  rates 
might  be  decisive. 

To  make  possible  widespread  competition  in  such 
cases,  the  rule  of  one  price  F.  0.  B.  at  the  factory  might 
be  relaxed,  and  instead  the  producer  might  be  allowed 
to  divide  his  territory  into  districts  and  charge  all  cus- 
tomers in  a  given  district  the  same  price.  The  divisions 
of  the  market  should  be  based  on  transportation  costs, 
and  each  consumer  should  pay,  in  addition  to  a  uniform 
price  for  the  goods  alone,  a  further  sum  big  enough  to 
cover  the  average  cost  of  delivering  the  goods  in  his 
particular  district.  This  rule  would  be  in  many  ways 
simpler  than  to  require  one  price  F.  O.  B.  Within 
every  district,  one  price  to  all  customers;  and  differen- 
tials between  the  districts  to  cover  approximately  the 
costs  of  carriage;  such  a  rule  would  hamper  no  one  in 
any  legitimate  competitive  endeavor.  In  the  case  of 
light  and  valuable  articles,  on  whose  price  the  trans- 
port charges  would  make  little  impression,  the  country 
could  well  be  divided  into  a  few  large  zones.    Perhaps 


no  THE  CONTROL  OF  TRUSTS 

in  extreme  cases  one  zone  might  cover  practically  the 
whole  market  and  costs  of  carriage  be  disregarded,  as 
has  already  been  suggested. 

In  administering  such  a  plan,  an  executive  com- 
mission would  be  necessary,  but  if  we  had  such  a  body, 
the  details  could  be  left  to  its  judgment  and  experience. 
The  producer  could  probably  be  left  free  to  choose 
which  system  he  would  follow,  being  merely  required 
to  file  all  prices,  and  the  boundaries  of  all  districts, 
with  the  commission.  These  records  would  then  be  at 
hand  in  case  the  commission  had  reason  to  suspect 
that,  through  a  process  of  commercial  gerrymandering, 
or  departure  from  published  rates,  or  in  any  other  way, 
the  scheme  was  being  used  as  a  cloak  for  discrimina- 
tory practices.  The  situation  would  be  closely  parallel 
to  that  of  the  Interstate  Commerce  Commission,  and 
the  experience  of  that  body  would  be  of  inestimable 
value  in  framing  the  details  of  the  new  machinery. 
Indeed,  it  would  hardly  seem  like  new  machinery  at 
all,  so  nearly  does  it  approximate  to  our  present  form 
of  railroad  control. 

Another  thing  that  would  ease  the  operation  of  the 
new  plan  is  the  practice  of  the  railroads  in  making  freight 


DESTRUCTIVE   COMPETITION  III 

rates.  Wherever  the  system  of  blanket  rates  pre- 
vails, wherever  zones  are  established  in  which  all 
stations  get  the  same  rate  from  producing  centres  or 
from  other  zones,  there  it  is  possible  for  competitors 
to  be  on  even  terms  over  the  whole  area  of  the  zone, 
even  if  both  must  fix  one  price  at  the  factory  and  make 
the  customer  pay  the  freight.  This  rate  practice  is 
widespread;  the  country  is  dotted  with  groups  of  "com- 
mon points."  The  larger  part  of  Texas  forms  a  zone  of 
equal  charges  for  shipments  from  a  distance;  New  Eng- 
land is  treated  in  the  same  way  on  much  of  its  long-haul 
traffic;  while  on  westbound  transcontinental  shipments 
the  whole  region  east  of  Chicago  is  treated  as  a  unit. 
Thus  any  two  manufacturers  east  of  the  Mississippi, 
if  they  made  the  same  price  at  their  respective  factories, 
would  also  be  able  to  sell  on  even  terms  anywhere  on 
the  Pacific  slope;  and  if  two  producers,  wherever  lo- 
cated, made  such  prices  that  they  could  compete  with 
each  other  in  any  single  part  of  the  Texas  common- 
point  territory,  they  would  be  equally  able  to  compete 
at  every  point,  since  every  point  in  this  territory 
gets  the  same  rate  as  every  other  point  on  shipments 
from  considerable  distances. 


112  THE  CONTROL  OF  TRUSTS 

With  manufacturers  under  a  one-price  rule,  the  rail- 
roads would  be  under  some  pressure  to  extend  the 
"blanket"  principle  even  further  than  they  do  at 
present,  in  order  to  widen  the  market  of  the  producers 
on  their  Hnes,  and  in  so  doing  they  would  widen  the 
areas  of  equal  competition.  When  two  mills  are  rivals 
for  an  intermediate  territory,  each,  in  enlarging  its  sales, 
does  its  best  to  secure  the  cooperation  of  the  railroad 
over  which  it  ships  its  goods,  to  the  benefit  of  railroad 
and  shipper  ahke.  The  railroad  that  takes  the  initiative 
in  this  has  sometimes  gone  so  far  as  to  charge  less  for 
long  hauls  than  for  shorter  ones,  because  otherwise 
its  producers  could  not  sell  goods  at  all  in  the  more 
distant  markets.  A  more  reasonable  way  of  securing 
the  same  result,  however,  is  for  the  roads  from  both 
directions  to  make  blanket  rates  covering  a  considerable 
area,  and  giving  every  point  in  that  area  the  same  rate 
as  every  other  point.* 

ilLi  ilh 


*  Thus  in  the  above  diagrams,  the  heavy  vertical  lines  represent  the 
prices  charged  at  the  factories  located  at  A  and  B,  and  the  sloping 


DESTRUCTIVE   COMPETITION  II3 

But  if  this  were  difficult  to  bring  about,  it  would  be 
quite  simple  to  relax  the  one-price  rule  itself,  as  already- 
suggested,  letting  producers,  if  they  chose,  divide  their 
markets  into  zones  and  charge  one  price  throughout 
each  zone,  basing  this  price  approximately  on  the 
average  cost  of  carriage  to  the  various  points  in  each 
area. 

For  all  these  reasons,  then,  we  need  have  little  fear 
that  a  one-price  system  would  seriously  lessen  the  sphere 
of  competition.  This  would  not  be  true  of  goods  of 
high  value  in  proportion  to  their  bulk,  for  in  such  cases 
the  transportation  charge  is  negligible.  Nor  could  it 
be  true  of  other  goods  whose  quahty  varies  and  is  the 
decisive  element  in  selling  them,  nor  would  it  be  true 
for  any  goods  in  those  large  territories  which  the  rail- 
ways cover  with  blanket  rates.  And,  finally,  if  in  spite 
of  all  these  facts  competition  should  be  unduly  nar- 
rowed in  any  case,  the  system  itself  can  be  relaxed  and 

dotted  lines  represent  the  increase  due  to  the  freight  rates.  In  each 
case  the  factories  are  placed  on  even  terms  in  the  area  between  P  and  Q; 
in  Fig.  I  this  is  done  by  an  unnatural  adjustment  of  rates  from  B,  while 
in  Fig.  II  the  adjustment  is  a  more  normal  one  and  does  not  violate 
the  "long  and  short  haul"  principle.  This  adjusting  of  rates  to  meet 
"market  competition"  is  a  common  practice,  and  may  be  expected 
to  be  carried  still  further  under  a  one-price  rule  which  prevents  the  pro- 
ducers themselves  from  making  concessions  to  distant  customers. 


114  THE   CONTROL  OF  TRUSTS 

an  elastic  zone  system  introduced.  And  if  even  under 
this  system  some  producers  have  a  decisive  advantage 
over  all  competitors  in  the  nearby  markets,  still  this  is 
only  because  they  are  forced  to  give  those  markets 
actually  lower  prices  than  are  paid  by  those  who  have 
the  advantage  of  active  competition.  Surely  no  such 
producers  could  have  just  cause  for  complaint.  The 
purchasers  at  A  and  B,  in  the  diagram  on  page  112, 
may  not  have  competing  producers  to  choose  from,  but 
they  get  their  goods  at  prices  actually  lower  than  are 
charged  in  the  region  P-Q,  where  active  competition  is 
enjoyed. 

Competition  will  be  altered  and  the  shock  cushioned 
by  such  a  system,  but  that  is  a  much  needed  change. 
We  have  too  often  seen  unrestricted  price-cutting  lead 
to  cut-throat  warfare  and  it  is  just  that  condition  that 
we  are  tr3dng  to  prevent.  We  do  not  want  competition 
to  be  as  fierce  as  it  has  been  in  the  past,  for  that  kind 
never  lasts  long,  and  while  it  lasts  it  does  more  harm 
than  good.  The  more  moderate  rivalry  that  would  be 
set  up  in  the  way  just  proposed  offers  at  least  some 
probability  of  permanence,  so  that  we  should  be  likely 
to  have  more  competition  left  after  twenty  years  than 


DESTRUCTIVE   COMPETITION  115 

after  twenty  years  of  the  present  attempts  to  preserve 
"free"  warfare. 

In  passing,  we  may  mention  that  the  present  sys- 
tem has  other  drawbacks  beside  the  danger  of  throat- 
cutting.  When  factories  compete  on  even  terms  over 
wide  areas,  taking  on  themselves  the  customers'  burden 
of  freight  rates,  we  have  a  certain  amount  of  unnecessary 
carriage  done,  in  moving  goods  from  a  distant  factory 
when  a  near  one  would  have  gotten  the  business  if  the 
freight  rates  had  been  figured  in  the  price.  There  are 
those  who  think  it  not  an  unmixed  blessing  that  shoes 
are  shipped  from  Boston  to  Chicago,  and  other  shoes 
from  Chicago  to  Boston,  at  a  time  when  railroads  are 
complaining  of  the  difficulty  of  getting  capital  to  pro- 
vide for  their  growing  traffic. 

Thus,  even  conceding  that  markets  will  be  divided 
into  local  spheres  of  influence,  there  seemed  to  be  no 
serious  dangers  involved.  In  the  enforcing  of  such  a 
system,  a  practical  difficulty  will  arise  from  the  fact 
that  merchandise  seldom  has  those  qualities  which,  in 
connection  with  money,  have  been  termed  "homo- 
geneity" and  "cognizability."  The  goods  vary  in 
quality,  and  it  is  not  always  possible  for  a  purchaser  to 


Il6  THE  CONTROL  OF  TRUSTS 

tell  of  what  quality  they  are.  If  a  trust  wished  to  crush 
a  competitor  in  Minnesota,  by  selling  within  that  state 
certain  goods  at  less  than  it  cost  to  make  them,  it  might 
try  to  accomplish  its  purpose,  by  making  a  special  type 
of  goods  and  offering  it  exclusively  in  the  market  of 
Minnesota.  It  might  create  an  entirely  new  brand  of 
goods  and  offer  it  nowhere  except  in  this  one  state;  and 
there  it  might  offer  it  at  a  price  that  no  competitor 
could  meet. 

Under  the  supposed  law,  however,  the  trust  would  be 
obliged  to  sell  goods  of  this  special  brand  to  consumers 
in  other  states  at  the  same  price  at  which  it  sold  them 
in  Minnesota;  and  if  orders  should  come  promptly  and 
freely  from  the  other  states,  its  attempt  to  ruin  its  com- 
petitors might  prove  costly  and  unsuccessful.  Sooner 
or  later  the  orders  would  doubtless  come,  and  the 
strategy  of  the  trust  would  no  longer  serve  its  purpose. 
However,  an  independent  producer  might  not  hold 
out  long  enough  to  get  the  rehef  thus  afforded.  During 
an  interval  the  trust  would  secure  high  prices  in  every 
state  but  one;  and  in  that  single  state  it  could  afford  to 
stand  a  loss  for  the  sake  of  ruining  its  competitor. 

It  is  true,  indeed,  that  this  particular  dub,  which 


DESTRUCTIVE   COMPETITION  I17 

would  be  very  effective  in  braining  a  single  small  com- 
petitor, would  be  of  no  use  in  simultaneously  attacking 
a  number  of  small  producers  making,  in  their  various 
shops,  as  complete  an  assortment  of  goods  as  is  made 
by  the  trust  itself.  If,  however,  they  were  assailed  one 
at  a  time,  they  could  be  successively  crushed,  unless 
they  formed  a  pool  of  their  own  for  resisting  such  as- 
saults. If  they  did  this  they  could  fight  fire  with  fire. 
The  cut  on  one  article  made  by  the  big  corporation 
could  be  met  by  a  similar  cut  on  that  same  article  made 
in  one  of  the  shops  controlled  by  the  pool;  and  this 
affords  one  reason  for  raising  the  question  whether  the 
permanent  poUcy  of  this  country  will  or  will  not  be 
hostile  to  such  pools.  In  foreign  countries  they  are 
treated  with  toleration,  if  not  with  friendliness;  and  for 
defensive  purposes  in  wars  against  vast  corporations 
they  may  have  a  function  to  perform  here. 

If  the  law  is  to  offer  relief  from  this  baflSing  situa- 
tion, and  from  others  Hke  it,  it  must  be  done  under  some 
general  statute  embodying  the  spirit  of  the  special  ones 
against  unfair  competition,  and  preferably  strengthened 
by  the  creation  of  a  commission  to  aid  in  its  enforce- 
ment, as  the  Interstate  Coromerce  Commission  en- 


Il8  THE  CONTROL  OF  TRUSTS 

forces  the  broad  and  general  provisions  of  the  Act  to 
Regulate  Commerce.  A  Hberal  interpretation  of  the 
Sherman  Act  would  accomplish  much,  for  surely  all 
unfair  competition  is  an  "unreasonable  restraint  of 
trade,"  but  statutes  can  make  assurance  surer. 

If  it  could  be  proved  that  a  reduction  in  the  price  of 
some  one  type  of  goods  were  not  justij&ed  by  changes 
in  the  conditions  of  production  and  that  it  could  not 
be  permanent,  this  would  be  one  evidence  that  the  cut 
was  made  for  a  predatory  purpose.  If  the  price  of  the 
particular  grade  of  goods  were  first  put  down  and  then 
put  up  again,  and  if  rivals  were  crushed  in  the  interval, 
this  would  be  conclusive  proof  of  the  fact.  Sharp  pen- 
alties enforced  in  a  few  cases  might  make  the  policy 
too  dangerous  to  be  practised.  It  is  no  longer  to  be 
supposed  that  statutes  for  the  suppression  of  wars  of 
extermination,  such  as  a  trust  can  now  wage  against  its 
rivals,  are  powerless,  if  the  people  continue  to  be  in  as 
determined  a  mood  as  they  are  in  at  present  and  if  they 
maintain  a  fierce  watchfulness  over  their  officers. 

Statutes,  of  course,  are  not  a  sure  reliance,  so  long  as  a 
type  of  lawyer  can  gauge  his  skill  in  his  profession  by  his 
ability  to  "drive  a  coach  and  four  through  them." 


DESTRUCTIVE  COMPETITION  II9 

The  technicalities  of  law  usually  favor  offenders  and  are 
the  bread  and  meat  of  the  lawyers  whose  business  con- 
sists in  securing  immunity  for  criminals.  In  any  statute 
which  defines  and  forbids  certain  predatory  acts  the  first 
essential  is  a  provision  that  other  acts  having  a  like 
purpose  should  not,  by  any  implication,  be  permitted. 
Common  law  is  more  general  than  statutes  and  efficient 
action  in  curbing  trusts  can  be  taken  under  it.  It  for- 
bids monopoly  in  a  sweeping  way  and  no  statute  must 
be  allowed,  by  implications  or  otherwise,  to  weaken 
this  prohibition.  A  work  of  definition  must  be  accom- 
plished, but  not  in  a  way  that  will  cut  down  the  scope 
of  the  state's  action  in  an  important  field. 

There  is  some  advantage  in  continuing  to  use  the  old 
phrase  "restraint  of  trade,"  and  if  this  is  done  defini- 
tions will  evolve,  and  any  statutory  definitions  that  are 
useful  will  have  to  be  in  harmony  with  such  an  evolu- 
tion. How,  for  scientific  purposes,  can  a  monopolistic 
corporation  be  formally  defined?  Must  it  be  the  only 
one  from  which  an  article  can  be  procured  in  order  to 
come  within  the  definition?  If  so,  there  are  scarcely 
any  monopolies  now  in  existence.  In  nearly  every 
industry  there  is  a  fringe  of  independent  life  remaining. 


I20  THE  CONTROL  OF  TRUSTS 

The  trust  takes  the  centre  of  the  field  and  lets  a  few 
small  rivals  operate  on  the  outskirts.  If  these  are  in 
the  trust's  power  and  compelled  to  do  its  bidding,  the 
monopoly  is  essentially  complete.  If,  then,  new  and 
strong  competitors  are  precluded  from  appearing,  the 
position  of  the  monopoly  will  continue  to  be  secure; 
for  it  has  nothing  to  fear  on  the  economic  side.  Just 
here,  therefore,  its  danger  on  the  legal  side  ought  to 
begin;  for  it  is  the  banishing,  not  merely  of  the  actual, 
but  of  the  potential,  competitor  that  enables  it  to  do  the 
oppressive  things  which  brand  it  as  an  outlaw.  If  the 
state  will  take  it  effectively  in  hand  at  the  point  where 
competition  ceases  to  restrain  it,  the  first  step  in  a  suc- 
cessful public  policy  will  be  taken.  It  needs  no  treat- 
ment till  its  power  reaches  that  point. 

If  we  propose  to  enforce  either  the  common  law  or  the 
Sherman  Law  as  interpreted  "in  the  light  of  reason," 
there  are  several  economic  distinctions  that  will  have 
to  win  recognition  before  the  course  of  legal  proceedings 
can  be  clear.  We  must,  first,  recognize  potential 
competition  as  one  regulator  and  note  the  means  used 
by  trusts  to  destroy  its  power. 

To  dominate  weak  rivals  and  to  prevent  strong  ones 


DESTRUCTIVE   COMPETITION  121 

from  appearing,  is  to  perform  the  act  and  to  take  on 
the  character  of  a  monopoly.  A  merely  possible  mill 
which  as  yet  does  not  exist  may  forestall  and  prevent 
monopolistic  acts.  If  the  way  is  quite  open  for  it  to 
appear,  the  trust  may  refrain  from  keeping  prices  at  a 
high  level.  The  test  of  the  question  whether  the  great 
corporation  is  or  is  not  a  complete  monopoly  is  apphed 
by  determining  whether  the  way  is  or  is  not  open  for 
the  competitor  to  appear.  If  the  new  mill  can  be 
built  with  no  danger  that  the  trust  will  close  it  by  means 
of  some  of  its  illegitimate  practices,  the  great  corporation 
is  shorn  of  its  dangerous  power  and  may  then  be  a  benef- 
icent institution.  It  may  produce  goods  economically, 
accumulate  capital  and  help  in  giving  to  our  country 
an  industrial  dominance  in  the  world.  The  only  sure 
evidence  that  rival  mills  can  be  built  and  run  with 
safety  is  the  fact  that  some  of  them  have  been  built 
and  are  running.  If  none  have  appeared  when  prices 
have  been  very  high,  this  is  a  proof  that  they  have  been 
terrorized. 

Size,  then,  need  not  in  itself  make  a  monopoly. 
Conceivably  a  corporation  might  make  all  the  goods 
of  a  given  class  and  yet  be  held  in  check,  for  a  time  at 


122  THE  CONTROL  OF  TRUSTS 

least,  and  prevented  from  doing  its  worst  by  merely 
potential  competitors.  Practically,  in  some  depart- 
ments of  industry,  an  approach  to  this  condition  has 
existed  and  this  has  made  the  state  of  society  a  startling 
one,  indeed,  but  still  tolerable.  The  power  for  evil 
that  goes  with  size  when  laws  are  lax  has  not,  in  these 
cases,  been  fully  used.  Such  cases  are  rarer  than  they 
once  were.  The  evil  power  is  far  too  often  possessed 
and  utilized,  and  whenever  it  is  used,  the  predatory 
work  begins.  Monopoly  is  that  monopoly  does;  and 
the  typical  act  that  identifies  the  unlawful  power  is 
the  crushing  of  rivals  by  the  means  above  described. 

Advancing  rapidly  is  the  time  when  to  every  highly 
developed  state  there  will  be  presented  a  sharp  practical 
alternative.  It  is  between  keeping  alive  the  power  of 
competition  and  not  doing  so.  Without  competition 
the  government  must  control  prices  of  products  and 
possibly  wages  and  prices  of  raw  materials.  This  is 
an  alarming  program;  and  yet  a  state  cannot  leave  its 
citizens  in  the  power  of  the  "octopus"  of  popular 
rhetoric.  Nothing  but  competitive  power  of  some  kind 
can  relieve  the  state  of  the  duty  of  entering  the  market 
rough  shod  and  forcibly  dictating  values  of  many  kinds. 


DESTRUCTIVE  COMPETITION  1 23 

Competition  can  save  us  from  that  difficult  and  peril- 
ous necessity.  It  can  take  from  monster-like  consoli- 
dations of  capital  their  power  to  do  evil,  while  leaving 
to  them  both  their  power  to  do  good  and  a  motive  for 
exercising  it. 

Discouragement  and  the  demand  for  drastic  and 
dangerous  action  by  the  state  begin  when  the  potential 
competitor  does  not  promptly  materialize  as  he  is 
needed.  In  proportion. as  the  prospect  of  his  coming 
shades  off  into  a  bare  possibility  and  then  into  an  im- 
possibihty,  the  evil  qualities  of  the  combination  grow 
and  the  good  ones  gradually  vanish.  Size  without  any 
predatory  power  makes  a  corporation  beneficent;  but 
size  with  this  evil  endowment  makes  it  a  menace  to 
freedom;  and  the  power  to  work  harm  depends  on 
special  practices  by  which  the  trust  often  crushes 
rivals.  The  prospect  that  it  will  resort  to  them  terrorizes 
the  rival  in  advance  and  presents  him  from  appearing. 
The  trust  has  but  to  brandish  its  clubs  when  the  rival 
producer  is  taking  his  preliminary  survey  of  the  field. 
It  will  not  need  to  use  them,  for  the  rival  will  vanish; 
and  this  statement  describes  what  has  latterly  become 
a  frequent  rule  in  industry. 


124  THE  CONTROL  OF  TRUSTS 

There  are,  then,  at  least  two  potentialities  that  have 
to  be  taken  into  account  if  the  present  situation  is  to 
be  understood  and  a  future  policy  is  to  be  wisely  de- 
termined. If  new  competition  is  sure  to  spring  up  in 
case  prices  are  raised,  they  will  not  be  raised  beyond  a 
moderate  limit.  They  will  continue  to  be  held  down 
by  a  possible  producing  agent,  and  not  merely  by  those 
competitors  that  are  present  and  acting.  This  is  po- 
tentiality number  one.  It  may  be  that  the  new  com- 
petitor will  not  dare  to  appear,  because  the  trust  will 
use  its  clubs  in  case  he  does  so.  This  is  potentiality 
number  two,  which  neutralizes  the  first  one  and  leaves 
the  monopoly  unchecked.  The  certainty  that  a  com- 
petitor will  be  ruined,  if  he  appears,  takes  away  all 
probability  of  his  appearing;  and  this  probability  affords 
the  only  natural  check  of  any  importance  on  the  action 
of  the  monopoly. 

What  is  wanted  is  a  third  potentiality,  such  as  the 
law  alone  can  afford.  It  needs  to  be  made  sure  that, 
if  the  trust  uses  its  clubs  on  the  competitor,  the  law 
will  use  its  own  clubs  on  the  trust.  This  will  preclude 
the  crushing  of  the  new  producers.  The  second  po- 
tentiality, the  bad  one  in  the  case,  will  then  be  re- 


DESTRUCTIVE   COMPETITION  I25 

moved,  while  the  first  and  good  one  will  be  restored. 
If  the  trust  has  much  to  dread  from  the  civil  power 
in  case  it  ruins  competitors  unfairly,  it  will  give 
them  the  freedom  of  the  field.  This  is  all  they  need, 
and  with  this  assured,  they  will  appear  promptly 
whenever  prices  are  raised  to  the  level  necessary  for 
ensuring  to  them  due  returns.  An  extortionate  rise 
will  not  take  place;  from  this  the  potential  competitor 
will  protect  the  public.  A  potency  residing  in  the  law 
annihilates  the  trust's  power  to  destroy  him  when  he 
becomes  active. 

From  every  point  of  approach  we  are  led  to  the  con- 
clusion that  the  law  must  disarm  the  trusts — it  must 
take  away  the  special  weapons  which  are  available  only 
for  evil.  The  railroad  problem  must  first  be  fully 
enough  solved  to  secure  fair  treatment  for  all  shippers. 
Personal  discriminations  of  the  direct  and  the  indirect 
kind  must  be  prevented.  Then  factors'  agreements, 
the  local  cutting  of  prices  and  the  predatory  breaking 
of  a  scale  of  prices  must  be  suppressed,  and  so  must 
every  other  practice  which  can  be  identified  as  monop- 
oHstic.  There  must  be  a  real  force  behind  these  pro- 
hibitions, and  it  must  be  capable  of  prompt  action. 


126  THE  CONTROL  OF  TRUSTS 

Since  the  efficiency  of  the  Sherman  Act  has  been 
revealed  there  is,  for  the  first  time,  reason  for  consider- 
ing all  these  things  as  within  reach.  Evidence  of  pred- 
atory conduct  is  not  lacking.  Mere  size  gives  to  a 
corporation  a  dangerous  power  and  the  raising  of  prices 
and  shutting  down  of  mills  show  that  the  power  is  used 
against  the  consumer.  The  treatment  that  rivals  often 
receive  is  evidence  that  the  power  is  used  against  them, 
and  it  is  not  impossible  to  discover  when  a  trust  is  club- 
bing competitors,  in  one  or  more  of  the  familiar  ways. 
Suppress  all  such  practices  and  you  give  to  potential 
competition  a  regulative  power  that  it  has  never  at- 
tained or  approached.  The  half  visible  leash  which  it 
has  placed  on  the  monsters  of  industry  will  become 
strong  enough  to  hold  and,  in  no  small  degree,  tame 
them. 

They  will  need  still  more  taming  before  they  become 
docile  draught  animals.  The  actual  present  situation 
is  one  in  which  a  hundred  great  corporations  would 
have  become  unrestrained  monopolies  if  they  had  not 
been  under  the  restraint  of  potential  competition. 
That  restraint  is  not  all  that  is  needed.  The  monsters 
tug  at  the  leash  and,  now  and  again,  strain  and  break 


DESTRUCTIVE  COMPETITION  1 27 

it.  Unless  we  can  make  it  stronger  we  shall  have  to 
reconcile  ourselves  to  a  limited  exercise  of  the  evil  power 
of  monopoly.  There  is  evil  for  the  consuming  public 
and  for  laborers,  and  there  is  positive  peril  for  the  state 
in  this  toleration  of  the  abuse,  and  it  will  strengthen 
decisively  the  growing  demand  that  the  government 
shall  take  industries  into  its  own  hands  and  manage 
them  for  the  public  welfare. 

When  we  shall  have  made  each  one  of  the  abnormal 
practices  by  which  competitors  are  terrorized  legal  evi- 
dence of  the  existence  of  a  monopoly,  and  shall  condemn 
corporations  that  afford  this  evidence,  we  shall  have 
made  a  very  large  beginning  of  a  scientific  and  per- 
manently effective  policy  in  dealing  with  trusts. 


CHAPTER  VI 

WHAT  MORE   IS  NEEDED 

Prospect  of  international  leadership  if  we  can  get  the  benefits  of  big 
business  and  avoid  its  dangers — Stopping  of  unfair  competition 
not  enough — ^Active  competition  the  only  proof  that  potential 
competition  is  not  intimidated,  and  the  only  training-school  for 
effective  competitors — All  present  proposals  fall  in  two  classes — 
We  should  make  sure  competition  is  a  failure  before  we  abandon  it — 
The  need  of  continued  improvements  and  danger  of  checking  them 
by  price-regulation — Under  competition  we  may  have  both  large- 
scale  production  and  progress. 

When  the  first  edition  of  this  book  was  published, 

appearances  gave  ground  for  hoping  that  the  solution 

of  the  problem  of  trusts  was  well  in  sight,  and  that  it 

would  require  no  forcible  dissolution  of  these  bodies. 

What,  in  the  preceding  chapter,  we  have  characterized 

as  the  beginning  of  an  effective  policy  seemed  likely 

to  suffice  for  the  whole  of  it.    If  only  we  could  repress 

monopoly  we  might  accept  and  welcome  a  great  amount 

of  centralization.    We  might  allow  mills  and  shops  to 

grow  large  and  to  combine  with  each  other,  for  the  sake 

of  the  economy  which  this  growth  insures;  but  we  must 

128 


WHAT  MORE   IS   NEEDED  1 29 

put  a  stop  on  predatory  uses  of  the  power  thus  gained. 
Such  a  policy  promised  to  preclude  monopoly  while 
ensuring  efficient  production,  fair  prices  and  fair  wages. 
It  seemed  that,  in  any  case,  abundant  wealth  would 
come  by  means  of  it ;  and  perhaps  harmony  and  even 
fraternity,  which  are  worth  more  than  crude  abundance, 
might  come  also.  To  the  country  that  should,  at  an 
early  date,  unite  in  this  way  collective  prosperity  with 
internal  harmony,  there  seemed  to  be  offered  a  position 
of  economic  leadership.  It  would  have  over  other 
countries  the  same  advantage  which  a  man  has  over 
other  men  when  he  precedes  them  in  the  use  of  efficient 
machinery.  Consolidation,  in  itself,  was  and  is  a  means 
of  enormously  enlarging  the  general  income,  and  the 
country  that  gets  the  benefit  of  it  early  has  an  ad- 
vantage over  its  rivals.  To  reap  the  full  benefit  from 
this  strategic  position,  a  country  that  is  utilizing  the 
power  of  the  trust  for  good  must  put  the  strongest 
curb  on  its  power  for  evil,  and  it  must  now  be  admitted 
that  somewhat  more  than  was  at  first  proposed  appears 
to  be  necessary.  When  predatory  acts  shall  have  been 
forbidden  there  will  remain  something  further  to  be 
done. 


130  THE  CONTROL  OF  TRUSTS 

As  a  practical  fact  it  is  safe  to  say  that  the  Sherman 
Law  will  be  retained  and  that  the  people  will  rely  on  it 
to  help  in  stopping  "unreasonable  restraint  of  trade." 
For  the  purpose  of  this  book  that  phrase  means  mo- 
nopoly and  describes  what  exists  whenever  a  consolida- 
tion, after  putting  an  end  to  such  competition  as  once 
existed  among  its  constituent  members,  has  (i)  taken 
unfair  action  against  new  competitors  and  (2),  for  the 
sake  of  profits,  put  a  check  on  the  amount  of  goods 
produced  and  sold.  Without  these  two  practices  the 
mere  ending  of  competition  between  the  parties  in  the 
combination  would  not  necessarily  lead  to  any  evil. 
These  practices  must  be  prevented,  even  though,  in 
some  cases,  a  drastic  law  has  to  be  invoked  to  accom- 
plish it. 

In  this  statement  there  is  an  implied  admission 
that  something  more  may  need  to  be  done  than  to  de- 
fine, forbid  and  repress  those  particular  acts  of  the 
trust  which  are  essential  parts  of  its  predatory  tactics. 
It  is  clear  that,  besides  the  competition  which  is  only 
potential,  there  needs  to  be  a  goodly  amount  of  it  which 
is  active.  The  condition  in  which  society  will  be  quite 
safe  is  not  one  in  which  an  overgrown  company  pos- 


WHAT  MORE   IS   NEEDED  I3I 

sesses  most  of  the  field  and  an  obscure  remnant  of  in- 
dependent production  is  here  and  there  found.  Under 
such  conditions  there  is  no  evidence  than  even  the  pos- 
sibility of  a  really  efficient  competition  survives.  The 
trust  may  have  clubbed  its  principal  rivals  and  may  have 
its  weapon  in  hand  ready  for  new  ones.  The  only  sure 
evidence  that  competitors  can  come  into  the  field  is 
the  fact  that  they  do  so  when  prices  are  high  enough  to 
furnish  the  lure. 

Furthermore,  the  potential  rival  of  the  trust,  to  be 
capable  of  competing  actively  and  effectively,  must 
know  the  business,  must  have  had  experience  in  secur- 
ing capital  and  a  skilled  labor  force,  and  in  making  and 
marketing  the  goods  in  question.  If  our  David  be  not 
expert  with  his  sling  before  he  goes  out  to  meet  Go- 
liath, he  will  have  little  time  to  practise  afterward. 
If  all  active  competition  were  absorbed,  how  long 
should  we  keep  that  splendid  body  of  managers,  men 
of  resource  as  well  as  of  specialized  trade  knowledge, 
schooled  in  the  hard  knocks  of  active  competition, 
who  can  be  relied  on  to  seize  the  first  opportunity 
afforded  by  high  prices?  A  decade  would  see  them 
dwindling  in  number  and  losing  their  cunning;  in  two 


132  THE  CONTROL  OF  TRUSTS 

decades  they  would  be  forgotten.  A  sufficient  amount 
of  active  competition  is  what  the  people  wanted  when 
the  Sherman  Law  was  passed  and  it  is  what  they  are 
now  demanding  when  they  insist  that  it  shall  be  retained 
and  enforced. 

Plans  for  dealing  with  trusts  presuppose  that,  at  least 
in  its  essentials,  the  Sherman  Law  will  stand.  The 
prominent  plans  for  regulating  trusts  fall  into  two 
classes,  of  which  one  includes  measures  which  lead  to  a 
regulation  of  prices  by  the  government,  and  the  other, 
those  which  involve  keeping  the  consolidated  companies 
from  reaching  such  a  size  that  no  adequate  amount  of 
competition  will  survive.  In  cases  in  which  the  cor- 
porations have  reached  that  state,  the  plan  requires 
that  they  should  be  divided.  It  will  be  necessary  to 
test  the  claims  of  these  two  classes  of  measures;  but 
in  advance  of  the  test,  it  is  clear  that  regulating  prices 
by  a  governmental  commission  or  other  public  agency 
implies  a  failure  to  secure  regulation  of  the  natural 
kind — that  which  till  recently  has  been  secured  by 
competition.  When  there  are  rival  producers  enough 
to  make  prices  normal  few  persons  think  of  asking  the 
State  to  take  charge  of  them.    The  two  classes  of  meas- 


WHAT  MORE  IS  NEEDED  1 33 

ures,  therefore,  may  be  defined  as  those  which  aoandon 
their  faith  in  competition  and  those  which  retain  that 
faith.  Yet  both  contemplate  acting  under  the  law  that 
was  passed  for  the  express  purpose  of  keeping  com- 
petition alive. 

We  shall  try  to  see  whether  it  is  true  that  competition 
is  dead  or  so  enfeebled  as  to  be  past  restoring.  In  the 
meanwhile  it  is  clear  that  the  measures  that  would  give 
competition  every  possible  chance  to  regain  its  vigor 
are  in  order  even  under  the  program  which  implies  an 
expectation  that  they  will  fail.  Those  who  think  that  we 
shall  have  to  come  to  the  policy  of  fixing  prices  by  official 
authority  should  prove  the  correctness  of  their  claim  by 
first  giving  competition  a  fair  chance  to  do  its  work 
and  seeing  whether  the  expected  failure  ensues.  Noth- 
ing could  be  more  irrational  in  theory  or  more  disastrous 
in  practice  than  to  act  on  the  supposition  that  com- 
petition is  defunct  when  we  know  that  it  is  tied  by  bands 
which  we  can  cut.  "What  will  it  do  when  it  is  liber- 
ated?" is  the  question  a  reasonable  being  will  ask, 
even  though  he  thinks  that  it  has  lost  too  much  vitahty 
to  do  very  much.  On  the  answer  to  this  question  the 
policy  of  the  government  hinges. 


134  THE  CONTROL  OF  TRUSTS 

Back  of  the  question  what  measures  will  bring  us 
to  our  goal  is  the  question  what  is  that  goal?  Assuming 
that  we  are  able  to  steer  our  industrial  "ship  of  state/' 
to  what  port  shall  we  sail?  The  best  we  can  hope  for, 
one  might  suppose,  is  fruitful  industry  yielding  a  large 
general  income  and  distributing  it  according  to  an 
honest  principle.  It  is  often  supposed  that  the  indict- 
ment against  the  trusts  is  altogether  on  the  ground  of 
their  extortionate  prices  and  that  on  the  side  of  pro- 
duction there  is  no  fault  to  be  found  with  them.  It  is 
assumed  that  they  create  their  products  with  a  maxi- 
mum of  economy  but  cheat  the  people  out  of  their  fair 
share  of  the  gains  therefrom .  This  does,  in  fact,  describe 
what  within  the  short  period  of  their  existence  they 
have  done;  and  yet,  if  they  should  become  secure 
monopolies,  they  would  do  something  much  worse. 
It  is  not  a  large  present  social  income  that  is  the  chief 
desideratum  hut  a  constantly  enlarging  income.  Progress 
is  in  itself  the  summum  bonum  in  economics,  and  that 
society  is  essentially  the  best  which  improves  the  fast- 
est. No  state  can  be  good  if  it  is  stationary,  or  funda- 
mentally bad  if  it  is  now  advancing  at  a  satisfactory 
rate.    It  is  the  direction  and  the  rate  of  social  progress 


WHAT  MORE  IS  NEEDED  135 

which  afford  the  supreme  test  of  the  quahty  of  an  eco- 
nomic system. 

Methods  must  forever  improve  or  the  increasing 
population  of  the  world  will  not  be  able  to  live  as  well 
as  it  now  does;  and  they  must  improve  rapidly  if  it 
can  hope  to  live  better  and  better.  Machinery  must 
become  more  deft  and  automatic  and  take  on  itself  more 
and  more  of  the  processes  that  are  now  done  by  the 
hands  of  laborers.  New  motive  powers  must  be  se- 
cured and  new  raw  materials  discovered,  and  the  vital 
forces  of  nature  must  be  more  fully  utilized  for  securing 
food.  Competition  always  insures  such  a  general  for- 
ward movement.  Our  plan  proposes  to  keep  it  alive, 
first,  as  the  immediate  protector  of  consumers,  farmers 
and  laborers.  We  wish  it  so  to  act  that  no  one  of  these 
classes  can  be  plundered;  but  we  cannot  keep  it  alive 
for  this  purpose  without  getting  the  benefit  of  its  more 
important  service — that  of  stimulating  invention  and 
of  spurring  producers  to  greater  and  greater  efficiency. 

Try  to  regtdate  trusts  by  a  crude  method  and  you  are 
likely  to  see  them  putting  a  damper  on  inventive  genius. 
This  is  the  natural  result  of  a  policy  of  regulating  prices 
by  the  action  of  public  officers.    We  shall  see  that  it 


136  THE  CONTROL  OF  TRUSTS 

would  furnish  a  motive  for  suppressing  improvements 
in  order  to  use  old  machinery  the  longer.  Regulate 
them  solely  by  the  power  of  competition,  and  you  will 
force  them  to  be  forever  on  the  alert  in  devising  and 
using  new  machinery,  lest  they  suffer  the  fate  that  has 
always  awaited  the  tardy  and  unenterprising.  A  small 
shop  with  good  appliances  may  undersell  a  big  shop 
with  poor  ones,  and  may  end  by  itself  becoming  big, 
while  its  rival  dwindles.  The  size  of  an  imenterprising 
company  will  afford  no  immunity  from  the  law  that 
writes  over  the  door  of  every  business  house  permission 
to  hve,  on  the  sole  condition  that  it  shall  forever  in- 
crease its  efficiency.  For  the  sake  of  future  progress 
far  more  than  for  the  sake  of  present  relief  must  we 
rely  on  keeping  ahve  the  rivalry  of  different  producers. 
In  the  outlook  that  is  opened  to  a  country  which  shall 
combine  high  centralization  with  effective  competition, 
there  are  features  which  in  this  small  book  we  cannot 
take  the  time  to  discuss.  In  the  proposed  new  regime 
there  is  a  probabiKty  of  greater  steadiness  in  the  gen- 
eral economic  movement.  "Booms"  and  depressions 
may  not  succeed  each  other  as  they  have  done,  and  the 
commercial  crisis  may  become  a  less  frequent  and  dan- 


WHAT   MORE   IS   NEEDED  I37 

gerous  phenomenon.  So  far  as  these  are  stimulated  by 
the  methods  of  speculative  "high  finance"  we  may 
confidently  expect  a  change  for  the  better  as  more  con- 
servative methods  are  introduced.  So  far  as  they  are 
aggravated  by  a  faulty  banking  system  we  should  gain 
hope  from  the  present  prospects  of  banking  reform. 
And  so  far  as  crises  are  due  to  maladjusted  production 
springing  from  business  men's  ignorance  of  the  true  rela- 
tions of  supply  and  demand,  the  evil  should  be  greatly 
lessened  by  the  free  publicity  of  business  doings  which 
will  be  one  of  the  features  of  the  new  competition. 

There  may  also  be  afforded  an  enlarged  field  for 
secure  investments.  The  bonds  of  industrial  com- 
panies should,  in  the  end,  become  a  safe  form  of  prop- 
erty for  even  poor  men  to  hold,  and  with  such  an  im- 
provement in  the  mode  of  investing  savings,  there 
should  be  an  increase  in  the  amount  of  the  savings 
themselves.  High  wages,  with  safe  depositories  for  the 
unconsumed  portion  of  them,  should  result  in  larger 
accumulations  made  by  laborers,  and  cause  the  true 
proletariat,  in  so  far  as  it  shall  survive,  to  become  only 
a  remnant  of  the  present  wage-earning  class.  The 
majority  of  those  who  labor  may  ultimately  possess 


138  THE  CONTROL  OF  TRUSTS 

capital  and  the  additional  comfort  and  influence  which 
it  brings.  The  stake  which  nearly  all  will  have  in  the 
social  order  may  bring  about  a  steady  upward  trend 
of  the  level  of  political  life.  Such  a  compounding  of 
benefits  is  as  well  worth  working  for  as  anything  that 
has  ever  been  offered  to  men,  and  should  call  forth  the 
heroic  effort  which  overcomes  every  difficulty  and  does 
what  is  seemingly  impossible. 

That  the  society  of  the  future  will  combine  economy 
with  progress,  and  that  it  will  do  this  by  retaining  the 
force  which  has  ensured  it  in  the  past,  is  made  nearly 
certain  by  the  nature  of  the  other  courses  which  are 
possible.  If  we  allow  prohibitions  to  be  unenforced 
and  let  monopolies  act  as  they  will,  we  shall  soon  reach 
an  unendurable  state.  It  will  leave  in  the  hands  of  the 
consolidations,  a  vast  power  for  evil  and  a  strong  motive 
for  using  it;  and  it  will  offer  to  them  a  greatly  lessened 
incentive  for  doing  good.  This  would  put  a  permanent 
blight  on  the  development  of  our  country  and  trans- 
fer to  others  the  place  of  leadership  which  is  now  offered 
to  us.  I  The  result  in  the  country  itself  would  probably 
be  state  socialism.  Beyond  a  moderate  distance  the 
toleration  of  private  monopoly  will  never  go.    Rather 


WHAT  MORE   IS  NEEDED  I39 

than  go  farther  the  state  would  probably  take  pos- 
session of  all  industries  that  assume  a  monopoKstic 
form. 

It  is  possible  to  reach  the  goal  of  general  prosperity 
without  resorting  to  this  perilous  step,  if  only  we  can 
maintain  a  normal  type  of  competition,  in  spite  of  in- 
evitable consolidation.  We  shall  see  what  course  of 
action  ajffords  the  most  promising  route  to  this  goal. 


CHAPTER  VII 

CONSTRUCTIVE  COMPETITION 

The  two  classes  of  proposal — If  competition  is  dead,  the  trusts  are 
public  service  corporations — If  competition  is  to  be  revived,  con- 
solidation must  be  limited — To  attack  particular  forms  of  com- 
bination is  futile — Recent  dissolutions  have  merely  established 
"communities  of  interest" — Need  of  limiting  the  power  to  vote 
stocks  for  the  control  of  competing  corporations — ^And  of  prevent- 
ing directors  from  being  interested  in  competing  concerns — Pos- 
sibility of  agreements,  and  weaknesses  of  them — Secret  pools  can 
be  prevented — To  legalize  agreements  involves  controlUng  prices — 
Danger  of  losing  the  incentive  to  progress — ^The  shding  scale — 
Difficulty  of  equalizing  supply  and  demand  by  public  fiat — Evils 
of  artificially  steady  prices — If  competition  be  restored,  will  it 
be  tolerable? — Causes  of  cut-throat  competition — It  may  be  dis- 
couraged by  the  one-price  rule — and  by  progress  in  industrial  cost- 
accounting — Example  of  department-stores — If  monopoly  be 
made  impossible,  one  inducement  to  bearing  the  temporary  losses 
of  cut-throat  competition  will  be  removed — Conditions  determin- 
ing how  far  combination  can  go  without  creating  a  condition  of 
monopoly. 

When  doctors  disagree,  the  patient  needs  a  strong 

enough  constitution  to  get  well  in  spite  of  them,  and  our 

industrial    and    legislative    practitioners    have    never 

seemed  more  hopelessly  divided  than  over  this  great 

disease  of  the  body  economic  which  they  are  now  called 

on  to  treat.   But  on  closer  study,  the  situation  simphfies 

140 


CONSTRUCTIVE   COMPETITION  141 

itself  somewhat,  for  if  we  can  get  the  right  diagnosis 
of  the  disease,  we  shall  not  go  fatally  wrong  in  the  treat- 
ment, and  there  are  only  two  diagnoses  from  which 
to  choose.  Among  those  who  approach  the  question 
fairly  and  intelligently,  there  are  two  kinds  of  plans 
proposed,  springing  from  two  views  of  the  fundamental 
nature  of  the  ills  that  now  beset  us. 

The  first,  and  perhaps  the  most  widely  held  among 
business  men,  is  that  in  large-scale  business  competition 
has  failed  completely  and  monopoly  has  come  to  stay. 
The  large  plant  is  more  efl&cient  than  the  small  one, 
the  combination  is  more  efficient  than  the  independent, 
competition  is  wasteful  and  unnatural  and  monopoly 
the  inevitable  outcome.  Such  businesses  are  in  a  true 
sense  ' '  natural  monopolies . ' ' 

To  one  who  holds  this  belief,  the  general  plan  of  action 
is  obvious.  We  already  have  a  considerable  class  of 
businesses  recognized  as  being  natural  monopolies, 
and  we  call  them  "public  utilities "  and  the  corporations 
that  operate  them  ''pubHc  service  corporations."  The 
businesses  that  supply  water,  gas  and  electricity  are 
the  typical  examples  in  this  class,  while  telegraphs, 
telephones  and  railroads  belong  in  the  same  family. 


142  THE  CONTROL  OF  TRUSTS 

Here  monopoly  is  a  practical  necessity,  and  yet  mo- 
nopoly power  in  private  hands  is  a  thing  we  will  not 
generally  endure.  Why  else  are  we  justified  in  speaking 
of  these  businesses  and  treating  them  as  things  apart? 
Is  it  because  the  services  they  render  are  of  general  use, 
are  necessities?  How  much  more  so  are  those  of  the 
butcher,  the  weaver  and  the  miller  of  flour!  Is  it  be- 
cause some  of  them  (not  all)  deal  with  communication, 
and  so  are  essential  to  the  growth  of  strong  public 
opinion,  national  unity  and  all  the  bonds  of  sympathy 
and  cooperation  that  are  so  vital  to  the  nation?  But 
why  then  include  the  making  of  gas  and  electricity, 
and  neglect  such  moulders  of  public  opinion  as  books, 
magazines  and  newspapers?  The  bottom  economic  fact 
is  that  these  businesses  are  naturally  non-competitive, 
and  for  that  reason  need  public  control.  If  compe- 
tition worked  well  in  the  gas  business,  we  should 
not  subject  it  to  any  special  regulation,  while  on  the 
other  hand,  if  weaving  and  flour-milling  become  as 
clearly  and  unavoidably  monopolistic  as  the  supplying 
of  gas  now  is,  they  will  become  by  that  fact  public 
services  just  as  truly;  for  monopoly  power  is  always  a 
public  concern. 


CONSTRUCTIVE   COMPETITION  I43 

For  the  recognized  public  utility  industries,  our  policy- 
is  settled  and  well-defined.  We  cease  trying  to  compel 
competition,  recognize  combination,  and  regulate  the 
prices  that  result,  usually  through  commissions;  and 
those  who  believe  that  the  industrial  trusts  furnish  the 
same  problem  must  logically  seek  the  same  remedy. 
If  they  have  their  way  they  will  legalize  monopoly, 
and  in  place  of  free  competition  as  the  regulator  of 
prices,  they  will  place  the  decrees  of  a  public  com- 
mission. 

The  other  way  of  attacking  the  problem  starts  from 
a  widely  different  diagnosis.  It  rests  on  the  beUef, 
deep  rooted  in  the  minds  of  the  masses  of  our  people, 
that  competition  is  not  yet  dead,  that  the  monopolistic 
powers  of  the  trusts  are  accidental  and  not  inevitable, 
that  they  are  built  upon  privileges  that  can  be  removed, 
powers  that  can  be  withdrawn  and  predatory  acts  that 
can  be  forbidden.  Those  who  hold  such  a  view  naturally 
wish  first  to  forbid  every  form  of  unfair  advantage 
which  one  competitor  may  take  over  his  rivals,  and 
further  to  forbid  combination,  in  whatever  guise,  when 
it  goes  beyond  the  point  at  which  effective  competition 
can  survive.    The  latter  problem  we  shall  now  take  up. 


144  .THE  CONTROL  OF  TRUSTS 

Acting  under  such  a  policy  we  may  attack  the  various 
forms  of  combined  control,  as  we  have  done  in  the  past; 
but  like  the  sorcerer  in  the  story  they  take  new  shapes 
and  elude  us.  We  have  driven  them  from  pools  to 
trusteeships,  from  trusteeships  to  holding  corporations, 
to  huge  consolidated  corporations  and  to  informal 
communities  of  interest.  We  cannot  forbid  all  forms 
of  combination,  for  we  cannot  Hve  without  it.  With- 
out some  way  of  massing  separate  capitals  modern 
industry  would  collapse,  for  its  tools  have  grown  in 
size  beyond  the  means  of  individuals  to  supply  them. 
And  whatever  form  of  combination  we  do  permit  may 
be  swollen  to  the  proportions  of  monopoly  without 
changing  the  form  that  has  been  sanctioned.  The  cor- 
poration itself  is  a  combination  and  it  may  grow  almost 
indefinitely  without  changing  its  shape.  The  difference 
between  a  corporation  that  we  should  call  a  trust,  and 
another  corporation  that  we  should  call  an  independent 
may  be  a  difference  of  size  alone.  Obviously,  we  can- 
not afford  to  abolish  all  corporations  merely  because 
some  of  them  may  grow  to  monopolistic  size;  and  yet, 
short  of  that,  it  is  hard  to  see  how  we  can  succeed  in 
preventing  monopoly,  imless  we  choose  some  other 


CONSTRUCTIVE   COMPETITION  145 

point  of  attack  than  the  mere  form  in  which  monopo- 
lists organize  their  undertakings. 

To  gain  the  end  desired,  the  thing  that  must  be  pre- 
vented, whatever  form  it  takes,  is  the  unified  ownership 
or  control  of  so  much  of  the  capital  in  a  business  that 
competition  is  extinguished  as  a  result.    The  attempt 


to  preserve  active  competition  leads,  then,  to  the  need 
of  setting  some  limit  on  the  amoimt,  or  proportion, 
of  capital  that  any  one  person  or  organized  group  of 
persons  can  control  in  any  one  business,  by  whatever 
method  this  control  is  exercised.  It  is  to  this  policy 
that  the  enforcement  of  the  Sherman  Act  is  leading  us. 

Thus  we  have  two  radically  different  methods  be- 
fore us.  Both  seek  the  same  ends;  industrial  efficiency, 
progress  and  justice,  but  they  differ  fundamentally 
as  to  method.  The  former  policy  will  appeal  to  those 
who  beheve  that  in  limiting  size  to  prevent  monopoly, 
we  shall  hamper  efl&ciency  as  well;  while  the  latter  will 
be  preferred  by  those  who  hold  that  a  good  independent 
can  be  as  efficient  as  the  trust,  and  that  competition 
furnishes  an  invaluable  incentive  to  progress,  which 
monopoly  and  price-fixing  would  destroy. 

In  either  case  we  shall  build  on  what  we  now  have, 


146  THE  CONTROL  OF  TRUSTS 

rather  than  raze  the  foundations  and  start  anew.  At 
present  we  are  trying  to  reestablish  competition,  with 
results  that  so  far  satisfy  no  one  completely.  As  the 
case  stands,  when  a  combination  is  proved  guilty  of 
restraining  competition  by  unreasonable  methods  and 
with  monopolistic  effects,  that  combination  must  be 
broken  up  and  reorganized,  under  the  courts'  direction, 
in  such  shape  that  the  pieces  shall  be  independent  of 
each  other  and  in  a  position  to  begin  competing.  But 
in  the  actual  reorganizations  the  one  most  salient  fact 
is  that  the  pieces  have  not  been  completely  separated. 
Without  going  into  a  maze  of  details,  the  principal 
and  characteristic  basis  of  the  reorganizations  is  the 
dividing  of  the  shares  of  the  subsidiary  companies 
pro  rata  among  the  stockholders  of  the  holding  company. 
In  the  simplest  case,  that  of  the  Standard  Oil  Co., 
any  man  who  had  held  8%  of  the  stock  of  the  old  com- 
pany received  8%  of  the  stock  of  each  of  the  new  ones, 
and  any  group  of  men  who  between  them  had  held 
51%  of  the  stock  of  the  old  company,  would  now  hold 
between  them  51%  of  the  stock  of  every  one  of  the 
fledgeling  independents.  That  is,  we  have  dissolved 
the  form  of  combination  known  as  a  *' holding  com- 


CONSTRUCTIVE   COMPETITION  147 

pany,"  to  substitute  the  form  of  combination  known 
as  a  "community  of  interest."  We  have  forbidden 
the  usual  methods  of  unified  action,  while  leaving  the 
motive  for  it  as  strong  as  before  and  a  way  to  secure  it 
open.  The  original  owner  of  an  independent  refinery, 
after  selling  out  to  the  Standard  for  stock,  became,  of 
course  a  minority  holder  of  insignificant  importance  in 
the  larger  company.  After  the  dissolution,  far  from 
getting  his  own  plant  back,  he  becomes  an  insignificant 
minority  holder  in  the  corporation  which  controls  it, 
as  well  as  in  many  others  in  which  he  has  no  personal 
interest.  He  is  a  stranger  in  his  own  house,  without 
even  a  strong  enough  foothold  on  which  to  base  an 
effective  protest. 

In  the  case  of  the  Tobacco  Company,  it  is  true,  vot- 
ing power  was  given  to  the  former  holders  of  preferred 
stock  that  had  had  no  vote,  with  the  result  that  the 
twenty-nine  men  who  had  commanded  the  combina- 
tion no  longer  held  a  controlling  interest.  But  this 
merely  enlarges  the  community  without  destroying 
its  common  interest,  and  does  not  alter  the  fact  that  the 
same  names  are  found  on  the  stockholders'  lists  of  all 
the  new  corporations. 


148  THE  CONTROL  OF  TRUSTS 

Again,  it  is  true  that  in  the  Tobacco  and  Powder 
dissolutions  it  was  arranged  that  in  some  of  the  new 
companies  the  former  common  stockholders  should  be 
in  a  majority  and  the  former  preferred  stockholders  in 
a  minority,  while  in  others  of  the  new  companies  the 
former  preferred  stockholders  should  be  ^*in  control" 
and  the  former  common  stockholders  be  reduced  to 
minority  holders.  That  is  as  if,  out  of  a  corporation 
which  we  will  call  the  Smith- Jones  Company,  we  were 
to  make  two  new  companies;  the  Smith  Company  and 
the  Jones  Company  arranged  so  that  in  the  former. 
Smith  holds  60%  of  the  voting  stock  and  Jones  40%, 
while  in  the  latter,  Jones  holds  62%  and  Smith  38%. 
Having  done  this,  we  order  them,  with  the  utmost 
solemnity,  to  compete,  but  not  too  fiercely! 

It  is  also  true  that  the  new  corporations  cannot  have 
common  officers  or  directors,  or  otherwise  openly  vio- 
late the  intention  of  the  law.  This  suggests  the  question 
whether,  if  one  citizen  had  become  the  owner  of  all  the 
water-power  sites  available  for  the  use  of  a  certain 
town,  that  town  could  protect  itself  by  telling  him  to 
appoint  separate  agents  to  manage  each  of  them,  so 
that  they  should  compete  with  each  other.    Does  not 


CONSTRUCTIVE   COMPETITION  I49 

this  whole  plan  of  reorganization  overemphasize  the 
importance  of  mere  agents  and  agencies,  and  underes- 
timate the  authority  of  the  master's  voice? 

We  cannot  afford  to  be  blindly  guided  by  the  theory 
of  law,  which  holds  that  a  corporation  is  an  "artificial 
legal  person,"  if  this  leads  us  to  forget  or  to  ignore  the 
plain  fact  of  business,  that  a  corporation  is  a  real  as- 
sociation of  real  persons,  the  stockholders.  They  are 
the  corporation,  and  it  makes  no  essential  difference 
how  many  corporate  agencies  they  may  choose  through 
which  to  work  their  common  will.  It  has  been  well 
said  that  the  legal  theory  of  a  human  institution,  based 
as  it  is  on  the  precedents  of  past  times,  seldom  or  never 
agrees  exactly  with  the  real  nature  of  that  institution 
as  it  grows  in  meeting  new  conditions;  and  this  is 
nowhere  more  strikingly  illustrated  than  by  the  idea 
that  a  corporation  is  an  artificial  legal  personality, 
separate  from  those  of  the  stockholders  who  com- 
pose it. 

This  issue  has  been  squarely  raised  in  the  fight  for 
the  control  of  the  Waters-Pierce  Oil  Company,  a  former 
subsidiary  of  the  Standard,  by  the  original  Waters- 
Pierce  interests,  which  refused  to  accept  the  votes  of 


150  THE  CONTROL  OF  TRUSTS 

the  Rockefeller  stocks.  Meanwhile  the  whole  matter 
of  the  control  of  the  former  subsidiary  companies  is 
under  investigation.  It  is  hard  to  see  how  it  can  be 
logically  settled  save  by  refusing  to  allow  any  one  group 
of  persons  to  vote  a  controlling  interest  in  the  several 
newly  separated  concerns,  so  clearly  does  this  seem  to 
violate  the  spirit  of  the  order  which  requires  genuine 
independence  and  competition  between  them.  Here 
lies  the  crux  of  the  problem.  We  have  allowed  the 
separate  corporations  to  have  common  stockholders, 
but  can  we  afford  to  let  those  stockholders  choose  their 
officers  and  direct  their  policies,  even  within  the  limit- 
ations the  court  has  set?  In  the  opening  legal  skirmish 
of  the  Waters-Pierce  case  the  court,  by  a  temporary 
injunction,  forbade  Mr.  Rockefeller  and  others  to  exer- 
cise the  voting  power  of  their  stock  holdings  for  the 
directors  of  their  choice.  If  we  are  to  apply  this  princi- 
ple at  all,  can  we  do  less  than  apply  it  throughout,  and 
refuse  to  allow  any  stockholder  to  exercise  voting  power 
in  more  than  one  company  in  a  given  business?  This  is 
similar  to  the  suggestion  already  made  for  deaUng  with 
the  problem  of  the  holding  company  by  letting  one 
corporation  hold  the  stocks  of  others  as  investments, 


CONSTRUCTIVE   COMPETITION  15I 

but  not  allowing  it  to  exercise  its  voting  power  to  con- 
trol them. 

It  might  be  objected  that  if  very  much  stock  were 
held  in  this  way,  it  would  result  in  the  control  of  cor- 
porations by  the  minority  rather  than  by  the  majority. 
'  Each  company  might  be  controlled  by  the  small  num- 
ber of  the  owners  who  hold  stock  in  no  other.  The 
answer  to  this  is  simple,  for  in  this  respect  nothing 
can  be  worse  than  the  present  system,  by  which  one 
corporation  can  issue  bonds  carrying  no  voting  power, 
and  with  the  proceeds  buy  a  controlling  interest  in 
the  common  stock  of  another  corporation — stock  which ; 
itself  often  represents  but  little  capital  actually  invested. 
This  machine  for  getting  control  of  other  people's  cap- 
ital needs  to  be  abolished,  and  the  method  proposed 
furnishes  a  fair  prospect  of  success.  It  would  not  of 
itself  prevent  combination  by  the  out-and-out  method 
of  bu3dng  up  the  property  of  rival  plants  or  merging 
two  corporations  in  a  single  one;  but  it  would  prevent 
combination  from  taking  that  other  most  subtle  and 
pervasive  form,  in  which  those  who  have  put  in  the 
majority  of  the  capital  are  completely  shut  out  from 
control. 


152  THE  CONTROL  OF  TRUSTS  . 

By  way  of  illustration,  it  is  a  significant  fact  that 
while  the  total  issues  of  stocks  of  our  railways  are  nearly 
equal  to  the  bonds  in  amount,  yet  when  the  holdings 
of  corporations  are  subtracted,  and  the  amounts  held 
by  individuals  are  found,  little  more  than  one  third 
consists  of  stock  and  the  rest  of  bonds  and  similar 
obligations.  The  corporations,  when  they  buy  securi- 
ties, buy  chiefly  for  control,  and  hence  select  the  stocks 
that  give  them  controlling  power.  In  19 10,  over  43% 
of  our  railway  stocks  were  held  by  railway  corpora- 
tions, and  of  the  other  57%,  a  considerable  amount  was 
in  such  scattered  minority  holdings  as  the  controlling 
corporations  had  not  seen  fit  to  buy  up,  and  repre- 
sented not  the  slightest  voice  in  the  management.  Of 
the  capital  furnished  to  our  railroad  system,  then,  only 
a  generous  third  is  represented  by  voting  stock,  while 
a  great  deal  of  this  is  nullified  so  far  as  control  is 
concerned,  by  being  outvoted  by  solid  blocks  of  other 
stock  (not  counted  in  the  one  third  because  not  owned 
by  individuals)  held  by  corporations  and  controlled, 
through  tjiese  corporations,  by  an  inner  circle  of  share- 
holders. It  seems  clear  that  less  than  a  third,  probably 
not  more  than  a  quarter,  of  the  capital  of  our  railways 


CONSTRUCTIVE   COMPETITION  1 53 

is  represented  by  any  effective  voice  in  their  manage- 
ment. Two  billion  dollars,  if  invested  in  just  the  right 
stocks,  could  rule  the  railways  of  the  United  States, 
with  their  more  than  fourteen  billions  of  net  capitaliza- 
tion. Thus  we  already  see  minorities  controlling  ma- 
jorities to  an  appalling  extent,  and  the  proposed  change 
would  be  one  step  in  advance  toward  a  more  democratic 
condition. 

A  further  question  has  been  raised  whether  this  is  not 
confiscation — taking  the  value  of  the  stock  without 
compensation.  But  the  ownership  of  property  never 
involves  the  right  to  use  it  illegally,  and  the  proposed 
rule  would  take  nothing  away  save  the  right  to  use  the 
stock  to  do  an  illegal  thing; — to  estabHsh  and  main- 
tain monopolistic  control  of  an  industry,  a  condition 
which  the  law  prohibits.  Such  a  regulation  as  is  here 
proposed,  and  as  is  foreshadowed  by  the  current  course 
of  events,  would  not  prevent  anyone  from  investing 
in  competing  corporations  if  he  chose,  or  take  his  in- 
vestment from  him  if  already  made;  it  would  merely 
prevent  him  from  having  voice  in  the  government  of 
more  than  one  such  company  at  once,  a  thing  clearly 
necessary  wherever  the  spirit  of  the  Sherman  Law  re- 


154  THE  CONTROL  OF  TRUSTS 

quires  corporations  to  be  separate  in  interest  and  con- 
trol. 

The  position  of  the  directors  and  responsible  heads  of 
competing  corporations  furnishes  an  added  difficulty. 
If  these  officials  hold  large  blocks  of  stock  in  rival  com- 
panies and  receive  dividends  from  the  earnings  of  rival 
businesses,  we  can  hardly  expect  them  to  compete  vigor- 
ously, even  if  they  are  not  allowed  to  vote  such  stock 
in  the  annual  meetings.  Particularly  if  a  director  held 
as  much  stock  outside  his  own  company  as  he  did  within 
it,  he  could  hardly  be  expected  to  act  as  a  bona  fide 
independent.  If  we  impose  upon  stockholders'  voting 
power  the  limitation  already  suggested,  we  can  hardly 
fail  also  to  prohibit  the  choosing  of  directors  who  have 
any  considerable  interest  in  other  companies  from  which 
their  own  is  required  by  law  to  be  completely  separate 
in  policy  and  management.  Perhaps  our  courts  in  en- 
forcing dissolutions  will  apply  these  principles  of  their 
own  motion.  If  so,  there  would  be  no  disadvantage 
in  having  them  written  clearly  on  the  statute  books  to 
be  known  of  all,  and  uniformly  applied  to  all  cases. 
And  if  not,  then  the  enforcement  of  the  Sherman  Act 
is  in  so  far  imperfect. 


CONSTRUCTIVE  COMPETITION  1 55 

Supposing  that  we  succeed  in  our  present  plan  of 
action  and  bring  about  complete  separation,  what  will 
be  the  outcome?  Can  our  managers,  after  once  know- 
ing what  it  is  to  pocket  the  dividends  of  combination, 
be  expected  to  return  to  the  lean  and  uncertain  living  of 
competition,  or  will  they  find  ways  to  act  together  in 
spite  of  anything  we  can  do?  Can  they  not  make  secret 
agreements  to  maintain  prices,  and  thus  be  as  well  off 
as  before?  It  is  probable  that  secret  agreements  cannot 
be  prevented,  and  it  is  certain  that  informal  understand- 
ings will  exist,  as  they  exist  now  in  many  businesses; 
but  it  is  also  probable  that  under  proper  conditions 
these  tactics  need  give  us  no  great  alarm.  The  mere 
agreement  to  maintain  a  scale  of  prices  is  proverbially 
weak  and  unstable,  for  it  lies  at  the  mercy  of  a  single 
insurgent  within  the  group  or  a  single  invader  from  out- 
side. 

Such  agreements  may  prevent  cut-throat  competition 
such  as  would  drive  prices  below  the  cost  of  production, 
and  to  that  extent  be  good  for  all  concerned.  But  if 
they  do  much  more  than  this,  the  temptation  to  break 
them  is  usually  too  great  to  be  withstood.  If  an  un- 
reasonably high  price  is  set,  someone  can  cut  just  under 


156  THE  CONTROL  OF  TRUSTS 

this  price,  secretly  or  openly,  and  make  deep  inroads 
on  his  rival's  business  at  a  handsome  profit  to  himself. 
Whoever  among  the  group  is  in  most  pressing  immedi- 
ate need  of  funds  will  be  liable  to  do  this,  even  though 
he  knows  that  there  will  be  retaliation,  since  the  game 
is  such  as  more  than  one  can  play.  And  there  is  usually 
at  least  one  such  financially  weak  confederate  in  every 
industrial  group. 

But  if  the  group  itself  can  be  controlled,  there  is  still 
the  outsider  to  reckon  with.  Capital  is  persistent  in 
its  search  for  the  most  profitable  fields  for  investment, 
and  this  is  a  more  singificant  fact  in  determining  prices 
than  any  temporary  agreement  between  existing  pro- 
ducers. To  fix  prices  at  a  monopoly  level  the  supply  of 
goods  must  be  limited,  and  this  cannot  be  done  if  out- 
side capital  has  free  entrance  to  the  held.  By  its  very 
nature  the  "gentleman's  agreement"  offers  little  chance 
for  the  regular  tactics  of  clubbing;  indeed,  so  long  as 
the  price  scale  is  maintained,  that  very  fact  afifords  com- 
petitors protection  from  such  attacks.  Under  these 
circumstances  no  loose  agreement  can  fix  truly  mo- 
nopolistic prices,  or  it  will  fall  of  its  own  weight. 

Will  it  be  possible  for  the  companies  to  form  closer 


CONSTRUCTIVE   COMPETITION  1 57 

unions,  secret  pools,  and  so  defeat  the  ends  of  regu- 
lation? If  they  could  do  this,  they  would  be  in  some 
ways  better  off  than  if  they  had  remained  together, 
for  they  could  carry  on  predatory  price-cutting  with 
less  danger  of  legal  interference.  One  of  the  complaints 
against  the  Atlantic  shipping  combine  was  that  it  chose 
certain  vessels  to  act  as  ''fighting  ships,"  to  carry  on 
cut-throat  competition  against  any  independent,  the 
owners  being,  of  course,  repaid  out  of  the  profits  of  the 
pool.  Without  such  payments  the  thing  would  be 
impossible;  for,  if  one  member  were  required  to  bank- 
rupt himself  for  the  benefit  of  the  rest,  even  a  fairly 
close  community  of  interest  would  fail  to  meet  the  test. 
Of  course,  if  the  community  of  interest  were  complete 
and  none  of  the  stock  ever  changed  hands,  so  that  the 
same  community  could  be  perpetuated,  one  corpora- 
tion might  be  so  sacrificed,  by  devoting  it  to  the  task 
of  extinguishing  competition  wherever  it  might  appear. 
In  choosing  the  company  to  be  so  used,  it  would  be  well 
to  pick  one  that  had  little  or  no  bonded  debt,  else  the 
proceedings  might  be  abruptly  ended  by  a  receiver- 
ship which  would  operate  the  business  in  the  bond- 
holders' interest  and  put  a  stop  to  the  throat-cutting. 


158  THE  CONTROL  Or  TRUSTS    ' 

But  such  a  condition  is,  broadly  speaking,  beyond 
the  bounds  of  practical  possibility,  and  the  question 
at  issue  reduces  itself  to  this:  could  the  pooling  of 
earnings,  and  mutual  payments,  go  on  between  cor- 
porations situated  as  these  would  be?  But  newly  sep- 
arated, they  are  jealously  watched  for  the  first  signs 
of  recombining.  Could  common  funds  and  large 
intercorporate  payments  remain  secret  under  a  sus- 
picious and  skillful  scrutiny?  If  it  were  suspected,  and 
not  proved,  that  such  things  existed,  it  would  require 
but  little  increase  in  our  machinery  of  pubUcity  to 
furnish  conclusive  e\'idence.  It  would  not  require  a 
tenth  of  the  illumination  now  turned  upon  the  accounts 
of  railways  to  make  such  things  impossible  to  hide. 
We  have  power  enough,  if  we  will  use  it,  to  bring  about 
a  condition  which  will  very  seriously  interfere  with 
attempts  on  the  part  of  the  companies  either  to  form 
binding  unions  among  themselves  or  to  use  the  ordinary 
clubbing  tactics  with  full  effect. 

It  has  been  prominently  suggested  that,  instead  of 
trying  to  stamp  out  agreements  wherever  found,  we 
should  recognize  and  legalize  them,  within  limits. 
This  belongs  in  the  general  class  of  plans  which  go  on 


CONSTRUCTIVE   COMPETITION  1 59 

the  basis  that  free  competition  is  a  failure,  and  such 
plans,  as  has  been  already  shown,  lead  inevitably  to 
the  public  regulation  of  prices;  for  any  agreement  which 
has  power  to  fix  prices  at  will,  has  power  to  restrain 
trade  unduly.  And  any  such  legalized  agreement 
is  bound  to  have  power  over  prices  beyond  what  is 
possessed  by  the  outlawed  "gentlemen's  agreements" 
of  to-day.  Hence  if  the  government  proposes  to  pre- 
vent undue  restraint  of  trade,  its  obvious  duty  is  to 
make  sure  that  where  the  restraint  takes  the  shape  of 
agreements  on  prices,  the  prices  so  agreed  on  are  not 
unduly  high. 

Some  public  body,  preferably  a  commission,  must 
have  the  same  power  over  these  businesses  that  our 
public  service  commissions  exercise  over  gas,  electric 
light  and  other  pubHc  utilities;  must  regulate  their 
rates. 

Against  this  plan  there  are  serious  objections.  Have 
we  found  the  task  so  simple  and  solved  it  so  perfectly 
in  the  railroad,  express  and  telephone  businesses  that 
we  should  hasten  to  take  up  a  similar  burden  for  all 
of  our  great  national  industries?  Effective  regula- 
tion of  the  general  level  of  prices  in  any  business  im- 


l6o  THE  CONTROL  OF  TRUSTS 

plies  valuation  of  the  property  engaged  in  it.  Must  we 
have  recurrent  valuations  of  the  larger  part  of  the  in- 
dustrial capital  of  the  nation?  One  shrinks  from  the 
vastness  of  the  task. 

We  are  still  young  in  experience  of  the  effects  of  such 
price-regulation,  and  perhaps  some  of  them  have  still 
to  make  themselves  felt.  The  nation  has  regulated 
railway  rates  somewhat  for  nearly  twenty-five  years, 
but  in  all  that  time  we  have  been  occupied  chiefly  with 
questions  of  discrimination,  relying  largely  on  com- 
petition to  keep  down  the  general  level  of  rates.  It  is 
only  since  1906  that  the  Interstate  Commerce  Com- 
mission has  had  the  rate-fixing  power;  it  is  only  within 
the  last  two  or  three  years  that  any  important  results 
have  been  gained  in  regulating  the  level  of  charges  apart 
from  questions  of  discrimination,  and  it  is  only  within 
the  past  year  that  a  decision  has  been  rendered  which 
seriously  affected  the  general  level  of  charges  over  a 
wide  area.  Some  of  the  state  public  utilities  com- 
missions have  had  more  experience  of  this  particular 
kind,  but  on  the  whole  the  country  is  little  practiced 
in  the  issues  and  oroblems  that  such  a  poHcy  would 
raise. 


CONSTRUCTIVE  COMPETITION  l6l 

In  particular,  there  is  one  grave  danger  that  must  be 
avoided.  We  cannot  afford  to  remove  or  seriously  re- 
duce the  incentive  to  improvements.  Any  change  in- 
volves risk,  and  capital  takes  no  chances  unless  lured  by 
hope  of  rewards  above  the  safe  interest  on  gilt-edged 
investments.  This  hope  would  suffer  a  fatal  blight  if 
prices  were  to  be  regulated  by  a  mechanical  rule  based 
on  a  fixed  percentage  return  to  the  capital  actually 
invested.  And  yet  it  is  not  easy  to  suggest  any  other 
guide  which  an  impartial  board  could  safely  follow, 
and  our  commissions  have  not  yet  completely  solved 
the  problem  of  stimulating  progress  and  preventing 
extortion  at  the  same  time.  In  some  places  they  have 
undertaken  to  order  companies  to  improve  their  plants 
when  these  have  fallen  below  the  recognized  standard 
of  efficiency  and  were  inadequate  to  the  demands  on 
them.  But  progress  calls  for  more  than  this.  We 
must  experiment  with  the  unknown,  spend  capital  on 
untried  devices,  make  new  departures  in  installation 
which  no  commission  can  require  by  order,  because 
it  does  not  know  whether  they  will  work  or  not.  We 
can  hardly  expect  this  to  be  done,  at  the  risk  of  wasting 
the  time  and  money  if  the  results  are  disappointing, 


1 62  THE  CONTROL  OF  TRUSTS 

unless  success  holds  out  some  prospect  of  reward; 
certainly  not  if  the  earnings  must  go  on  at  the  same  dead 
level,  year  in  and  year  out,  alike  to  mediocrity  or  genius. 
Probably  the  nearest  approach  to  a  solution  of  this 
difl&culty  lies  in  the  method  of  the  sliding  scale.  In  this 
plan  a  scale  of  prices  is  first  fixed  which  will  ensure  a 
reasonable  return,  and  any  company  making  improve- 
ments which  result  in  cheapening  production  is  al- 
lowed to  make  higher  profits  on  the  condition  that 
they  share  the  gains  with  the  consumers  in  the  shape 
of  lower  prices.  Such  an  arrangement  must  run  for 
a  considerable  term  of  years  without  change  in  the 
terms  of  it,  and  it  is,  of  course,  useful  only  if  we  have  a 
complete  monopoly  consolidated  into  a  unit.  When 
we  come  to  regulate  the  prices  fixed  by  pools  or  agree- 
ments of  separate  producers,  with  different  plants, 
costs  and  earnings,  we  could  not  transplant  the  scheme 
without  important  changes.  The  prices  that  yield 
net  earnings  of  six  per  cent  on  the  investment  of  one 
producer  may  yield  eight  or  ten  per  cent  to  one  rival 
and  only  three  or  four  per  cent  or  less,  to  another. 
We  cannot  fix  prices  that  will  yield  a  fair  return  to  the 
most  efficient  only,  nor  can  we  protect  inefficiency  by 


CONSTRUCTIVE   COMPETITION  1 63 

guaranteeing  a  profit  to  the  worst  equipped  company. 
We  must  do  something  between  these  two  extremes; 
we  must  in  the  last  analysis  decide  which  plants  are 
necessary  and  which  superfluous,  and  guarantee  re- 
turns to  standard  ones  only,  but  not  to  the  superfluous 
and  inefficient. 

Where  draw  the  line?  It  seems  an  impossible 
question,  yet  it  will  have  to  be  answered  in  one  way  or 
another  if  we  are  to  follow  this  Hne  of  attack  at  all. 
After  this  has  been  done  the  most  progressive  companies 
will  still  be  earning  large  returns,  and  the  more  they 
can  reduce  their  expenses,  the  larger  their  returns  will 
be.  It  may  be  that  in  practice  this  will  afford  incentive 
enough  to  improvement  if  there  are  a  considerable 
number  of  producers  in  the  field.  If  the  price  that  can 
legally  be  charged  by  all  is  gauged  according  to  the 
costs  in  the  mediocre  establishment,  then  anyone  can 
increase  his  earnings  if  only  he  cheapens  production 
faster  than  the  rest  do.  The  great  and  crucial  step  in 
the  whole  operation  is,  of  course,  that  of  deciding  which 
plants  are  necessary  and  which  are  superfluous  and  not 
up  to  standard  efficiency.  That  is,  we  must  virtually 
decide  how  much  of  every  trust-made  article  the  country 


164  THE   CONTROL   OF   TRUSTS 

really  needs,  or  rather,  since  need  is  an  elastic  thing, 
we  must  decide  which  needs  shall  be  satisfied  and  which 
shall  not.  How  would  it  feel  to  be  a  member  of  the 
regulating  board?  Atlas  had  a  hard  task  and  a  re- 
sponsible one,  but  at  least  it  had  the  merit  of  sim- 
plicity. 

When  a  price  had  been  fixed,  all  who  could  not  pro- 
duce at  that  price,  would  be  forced  out  of  the  business, 
and  the  available  supply  would  be  determined  by  the 
producing  capacity  of  those  who  were  left.  This  im- 
plies an  extremely  nice  adjustment.  The  thing  to  be 
done  is  to  estimate  supply  and  demand  so  accurately 
that  the  amount  the  market  would  buy  at  the  legal 
price  would  be  just  equal  to  the  normal  output  of  all 
those  mills  which  could  produce  at  that  price. 

This  is  the  thing  that  is  done,  roughly  to  be  sure  but 
automatically,  under  competition.  To  try,  in  some 
branch  of  industry,  to  secure  the  same  result  by  direct 
public  regulation  would  be  an  interesting  experiment. 
Possibly  the  nearest  thing  to  it  in  present-day  experi- 
ence is  the  policy  of  the  Steel  Trust  in  "steadying  the 
market"  so  that  prices  shall  be  as  stable  as  possible, 
regardless  of  temporary  fluctuations  in  demand.    As  a 


i 


CONSTRUCTIVE  COMPETITION  1 65 

result  of  this,  demand  has  at  times  outrun  supply  so 
that  would-be  purchasers  had  to  wait  for  their  orders 
to  be  filled,  though  many  would  have  willingly  paid  a 
higher  price  for  prompt  service.  And  at  other  times, 
when  demand  is  slack,  the  output  of  the  mills  falls  far 
below  their  capacity,  a  condition  that  involves  hard- 
ship for  laborers  and  would  mean  great  loss  of  effi- 
ciency if  it  were  to  become  chronic.  In  the  case  of  the 
steel  industry  the  situation  is  relieved  by  the  occasional 
"open  market"  for  steel  products,  which  occurs  when 
supply  and  demand  are  so  far  from  equal  that  the  trust 
price  can  no  longer  be  maintained.  This  means  that  the 
price  of  steel  is  determined  by  forces  in  which  competi- 
tion plays  an  active  part  at  times,  and  in  which  the 
possibility  of  it  is  always  present.  Such  a  safety  valve 
could  hardly  be  expected  to  work  in  the  case  of  a 
legalized  monopoly,  and  those  who  fixed  the  legal  price 
would  bear  the  full  responsibility,  the  magnitude  of 
which  might  well  give  pause  to  those  who  lightly  ad- 
vocate a  general  regime  of  regulated  prices. 

Thus  during  the  past  year  *  the  prices  of  steel  products 
were  "steadied"  at  so  high  a  level  that  few  purchasers 
*  See  Commercial  &  Financial  Chronicle,  Apr.  6, 1912,  p.  938. 


1 66  THE  CONTROL  OF  TRUSTS    , 

were  found,  and  business,  which  had  not  yet  recovered 
from  the  panic  of  1907,  showed  all  the  symptoms  of  re- 
action and  continued  depression.  Then  followed  an 
"open  market,"  prices  were  sharply  cut,  and  the  orders 
poured  in  until  the  mills  were  started  into  active  oper- 
ation, while  this  fact  of  itself  stood  for  an  increased 
activity  in  other  lines  of  business,  the  making  of  ex- 
tensions and  undertaking  of  new  enterprises.  For  the 
steel  business,  being  the  largest  producer  of  the  things 
that  investors  buy,  is  in  a  peculiarly  vital  relation  to  the 
expansion  or  stagnation  of  the  general  business  world. 
This  experience  illustrates  the  unfortunate  results  of 
prices  that  are  controlled  and  "steadied"  and  the  re- 
lief that  even  intermittent  competition  affords  in  a  busi- 
ness not  wholly  dominated  by  a  trust. 

People  often  speak  of  the  stead3dng  of  prices  and  of 
production,  as  if  the  two  things  went  together,  and  this 
bit  of  experience  should  be  a  valuable  object-lesson  of 
the  truth  that  they  not  only  do  not  go  together,  but  are 
absolutely  inconsistent  with  each  other.  To  keep  prices 
steady  when  the  demand  fluctuates,  the  output  must 
vary,  being  curtailed  as  demand  falls  off  and  increased 
as  demand  revives.   But  one  of  the  results  of  this  process 


CONSTRUCTIVE   COMPETITION  1 67 

is  that  rigid  prices  postpone  the  revival  of  demand  itself 
while  it  can  be  hastened  by  concessions  from  the  former 
price  level.  Far  from  mitigating  the  effects  of  panic, 
such  a  "steadying"  system  actually  retards  the  natural 
process  of  recovery. 

Enough  has  been  said  to  show  that  the  general  regu- 
lating of  prices  is  a  task  far  more  complicated  and  deli- 
cate than  most  people  imagine,  and  is  not  a  thing  to  be 
rushed  into  lightly.  Rather  we  should  reserve  it  as  a 
last  resort  for  the  control  of  those  few  industries  in 
which  all  efforts  to  preserve  competition  shall  prove 
imavailing.  We  shall  take  no  sudden  leap  into  the 
darkness  of  untried  responsibilities,  by  undertaking  to 
regulate  prices  in  many  industries,  and  in  no  single  case 
shall  we  take  the  step  until  we  have  first  given  a  thor- 
ough trial  to  plans  of  a  less  radical  kind.  And,  within 
any  period  for  which  we  need  now  to  plan,  there  will 
be  but  few  cases  in  which  price  regulation  will  become 
a  necessity. 

We  shall  do  our  utmost  to  find  whether  it  be  not 
possible  to  reestablish  some  form  of  competition;  not 
just  the  old  form  perhaps,  but  something  that  will 
bring  the  same  results.    Some  are  already  convinced 


1 68  THE   CONTROL  OF  TRUSTS 

that  this  is  impossible;  that  the  great  cause  of  the  move- 
ment to  consolidation  has  been  the  fact  that  under 
modern  conditions  industrial  competition  cannot  pos- 
sibly act  as  a  moderate  and  tolerable  governor  of  pro- 
duction. When  the  modern  Titans  war  against  each 
other,  they  no  longer  stop  when  prices  reach  the  level 
of  cost,  but  go  on,  locked  in  the  struggle  by  the  great 
stake  which  they  have  wagered  and  which  they  cannot 
withdraw,  forcing  prices  below  cost  for  all  producers 
till  tjie  only  end  is  in  bankruptcy,  or  combination. 

Our  trust  movement  was  born  of  the  need  of  escap- 
ing these  intolerable  conditions,  and  if  the  trusts  are 
broken  up, — really  broken  up,  so  that  no  community 
of  interest  remains — shall  we  have  done  anything  save 
to  turn  the  clock  backward  and  return  to  a  condition 
from  which  we  have  escaped  once,  and  must  needs 
escape  again?  According  to  this  view,  the  only  free 
competition  that  can  work  in  a  "live  and  let  live" 
fashion  is  between  many  small  producers,  and  this  type 
disappears,  never  to  return,  with  the  coming  of  the 
hundred-million-dollar  corporation. 

This  view  has  much  to  justify  it,  and  any  plan  for 
restoring  competition  in  monopolized  industries  must 


CONSTRUCTIVE   COMPETITION  1 69 

needs  take  it  into  account.  Unless  a  tolerant  and 
healthy  competition  between  great  corporations  is 
possible,  then  our  regulative  policy  is  going  in  the  wrong 
direction,  and  the  sooner  we  reverse  it  the  better.  But 
if  competition,  though  working  badly  in  many  cases, 
can  be  made  to  work  better — if  the  source  of  the  trou- 
ble can  be  found  and  removed — then  we  may  still 
succeed  in  our  attempt  to  check  monopoly  by  restor- 
ing healthy  business  rivalry  as  a  regulating  agent. 

What  are  the  causes  of  "cut- throat"  competition, 
as  it  appears  in  modern  "big  business?"  Some  are 
inclined  to  attribute  it  to  a  changed  personal  attitude 
of  business  men;  to  the  growth  of  a  vaulting  ambition; 
to  greed  of  monopoly  power.  Perhaps,  too,  the  stake 
in  the  new  game  is  more  alluring,  for  only  a  few  financial 
lives  stand  between  the  efficient  man  and  the  ultimate 
prize,  the  undisputed  possession  of  his  field.  The  pros- 
pect of  such  power  cannot  fail  to  be  compelling  to  a 
man  of  spirit,  and  might  well  lead  him  to  suffer  losses 
cheerfully  in  the  preliminary  struggle. 

If  this  were  the  only  motive,  then  anything  that  made 
monopoly  impossible  would,  by  the  same  act,  put  an 
end  to  the  cut-throat  wars  that  have  their  source  in 


lyo         .  THE  CONTROL  OF  TRUSTS 

monopolistic  ambition.  But  there  are  other  reasons 
why  sharp  large-scale  rivalries  work  badly,  reasons  that 
have  nothing  to  do  with  the  hope  of  future  monopoly 
gains  but  are  part  of  the  new  situation  in  which  com- 
petitors find  themselves. 

One  secret  of  an  automatic  fixing  of  prices  Hes  in 
having  the  producing  power  adjusted  accurately  to 
the  demand,  in  employing  all  the  capital  that  can 
earn  the  current  rate  of  return,  no  more,  and  no  less. 
And  this  nice  adjustment  is  far  easier  to  secure  through 
competition  in  small-scale  industries  than  in  those 
businesses  that  require  large  and  highly  specialized 
plants.  If  too  many  grocery  stores  have  been  started 
in  a  city  of  some  size,  so  that  earnings  are  below  their 
normal  level,  a  few  of  the  more  unsuccessful  dealers 
drop  out,  and  earnings  are  quickly  restored  with  httle 
disturbance.  Little  or  no  capital  is  lost,  little  or  no 
labor  walks  the  streets,  little  or  no  change  in  prices 
is  evident.  In  such  a  business  there  is  no  great  over- 
production when  new  competitors  come  in,  no  cataclysm 
when  superfluous  ones  are  forced  out;  and  this  is  made 
possible  by  three  things. 

First,  the  capital  comes  and  goes  in  small  install- 


CONSTRUCTIVE   COMPETITION  171 

ments.  If  there  are  thirty  firms  of  about  equal  size 
in  the  business  now,  and  one  more  is  one  too  many, 
still  its  coming  demoralizes  the  business  less  than  if 
there  were  only  ten  such  firms,  or  five.*  In  the  second 
place,  starting  in  the  grocery  business  takes  little  time 
compared  to  that  required  for  the  building  and  equip- 
ping of  a  huge  factory  or  steel  plant,  so  that  the  busi- 
ness man  who  builds  to-day  to  satisfy  the  appetites  of 
to-morrow,  is  less  likely  to  be  ruinously  mistaken  in  his 
calculations.  Finally  the  "plant"  can  be  adapted  for 
other  purposes  with  Httle  or  no  loss,  and  so  is  not  likely 
to  go  on  being  used  in  the  grocery  business  if  that  be- 
comes less  profitable  than  others. 

In  large-scale  manufactures  the  would-be  competitor 
travels  a  thornier  path.  He  must  spy  out  the  land 
farther  in  advance  and  prepare  to  conquer  a  larger  terri- 
tory, or  fall.  He  enters  with  no  small  party,  one  eye 
on  the  way  of  retreat,  but  in  full  force,  burning  his 
bridges  behind  him.  To  drop  the  figure,  he  must  build 
a  big  plant  or  none  at  all,  and  he  must  rely  on  the  de- 
mand of  decades  to  come  to  buy  his  products  at  profit- 

*  Assuming,  of  course,  that  the  new  plant  has  to  be  of  the  average 
size,  or  in  some  fairly  definite  ratio  to  it,  in  order  to  compete  on  even 
terms. 


172  THE  CONTROL  OF  TRUSTS 

able  prices.  If  he  is  disappointed  in  his  estimate  of  the 
future  demand,  if  the  market  which  he  thought  strong 
enough  to  take  annually  twenty  thousand  tons  of  steel 
rails  from  his  mills  turns  out  to  want,  at  living  prices, 
only  ten  thousand  tons,  he  has  no  recourse.  His  plant 
is  there  and  there  to  stay,  even  though  it  is  clearly  a 
source  of  overproduction. 

We  might  become  much  cleverer  at  judging  the 
future  than  we  have  ever  been  in  the  past,  without 
removing  this  danger.  Perhaps  the  present  market  is 
strong  enough  to  take  ten  thousand  more  tons  each 
year  at  Hving  prices,  and  yet,  if  a  new  mill  is  built  it 
must  be  of  twice  that  capacity  or  be  hopelessly  ineffi- 
cient. In  such  a  case,  it  is  likely  that  the  new  mill  will 
be  built,  relying  on  the  expected  growth  of  the  de- 
mand to  make  it  profitable.  The  promoter  of  such  an 
enterprise  must  build  for  the  market  of  two  years, 
ten  years,  twenty  years  hence,  and  must  stand  or 
fall  by  his  decision,  for  his  plant  is  a  specialized 
one. 

All  of  these  facts  lead  to  the  result  that  such  industries 
are  more  likely  to  find  themselves  equipped  with  power 
to  produce  more  goods  than  the  market  will  take  at  a 


CONSTRUCTIVE  COMPETITION  1 73 

living  price,  even  to  the  most  efficient.  The  results 
of  this  condition  are  familiar  enough,  for  it  frequently 
leads  to  a  fierce  struggle  for  business  that  is  not  limited 
by  the  ordinary  rules  of  cost.  For  a  large  part  of  the 
outlay  of  such  a  business  is  made  up  of  general  or 
"overhead"  expenses,  which  are  incurred  for  the  busi- 
ness as  a  whole  and  cannot  be  traced  to  single  orders  of 
goods. 

With  the  mills  running  at  part  capacity,  these  general 
outlays  must  still  be  met,  and  any  new  business  that 
contributes  to  this  is  so  much  gain,  however  small  the 
contribution  be.  The  prices  that  have  to  be  made  to 
bring  in  the  new  business  may  be  such  as  would  bank- 
rupt the  company  if  appHed  to  the  whole  output,  but 
this  makes  no  difference.  So  long  as  they  furnish  any- 
thing at  all  above  the  direct  or  prime  cost  of  making 
the  goods,  they  afford  so  much  clear  gain.  As  a  result, 
there  begins  a  cutting  of  prices  to  special  groups  of 
customers,  a  poHcy  of  "dumping"  surplus  products 
at  prices  below  the  average  cost  of  manufacture  but 
still  large  enough  to  add  something  over  the  direct 
cost  of  making. 

But  this  is  a  perilous  experiment.    If  the  goods  are 


174  THE  CONTROL  OF  TRUSTS 

being  sold  in  several  markets  which  are  thoroughly- 
separated  from  one  another,  then  it  may  work  without 
disastrous  consequences.  American  manufacturers 
can  thus  dump  surplus  products  in  Europe,  knowing 
that  the  tariff  prevents  their  own  goods  from  being 
returned  to  spoil  the  prices  in  the  home  market,  and 
equally  prevents  the  foreigner  from  spoiling  them  by 
returning  the  compliment  in  kind.  But  in  markets  so 
closely  connected  as  the  different  sections  of  the  United 
States,  forming  as  they  do  practically  one  market  for 
many  articles,  the  case  is  far  different.  In  such  a  field 
it  is  soon  found  that  dumping  is  a  game  that  more  than 
one  can  play.  The  other  companies  are  in  the  same 
situation  and  have  the  same  incentives,  while  they  are 
spurred  to  aggressive  action  by  seeing  their  established 
market  taken  from  them  by  the  belligerent  tactics  of 
their  neighbor.  So,  first,  there  comes  retaliation  and 
reprisal  until  a  form  of  guerilla  warfare  takes  the  place 
of  reasonable  competition,  and  finally,  the  ruinously- 
low  prices  spread  over  the  whole  market  and  profits 
are  turned  into  losses  everywhere.  From  this  condi- 
tion some  way  of  escape  must  be  found,  and  the  sim- 
plest is  by  agreement  or  combination. 


CONSTRUCTIVE   COMPETITION  1 75 

Now  the  first  cause  of  this  condition  is  something  we 
must  accept  as  bound  to  occur  from  time  to  time  in 
large-scale  industry,  namely,  that  there  is  more  capital 
invested  than  the  market  will  support,  and  that  it  can- 
not get  out,  without  great  loss.  Another  cause,  how- 
ever, may  be  seen  in  the  fact  that  at  the  start  the  price- 
cutting  covers  only  part  of  a  firm's  customers,  and  only 
when  other  producers  begin  to  retahate  does  it  spread 
to  the  whole.  That  is,  it  starts  with  discrimination. 
If  this  were  not  possible,  if  any  cut  prices  had  to  cover 
all  customers  or  none  at  all,  would  not  a  manager  think 
twice  before  offering  his  whole  output  below  cost? 
Would  he  do  it  at  all? 

Many  American  manufactures  can  be  bought  more 
cheaply  in  Germany  than  in  the  city  where  they  are 
made,  and  in  many  cases  the  foreign  prices,  if  they 
applied  to  the  whole  business,  would  bring  the  manu- 
facturer to  bankruptcy  in  short  order.  This  means, 
for  the  Germans,  cut-throat  competition,  and  if  our 
tariff  were  not  so  high,  we  might  find  them  retaliating 
in  kind,  especially  in  times  of  depression.  But  if  our 
manufacturers  were  compelled  to  charge  the  same 
price  to  all  customers,  American,  German  or  Chinese, 


176  THE  CONTROL  OF  TRUSTS 

would  not  the  cut-throat  feature  be  quickly  removed 
and  the  "dumping"  cease? 

Another  thing  that  is  more  important  than  many- 
realize  is  the  kind  of  accoimting  system  used  and  the 
check  which  it  may  exercise  on  the  policy  of  the  selling 
department.  The  science  of  cost-accoimting  is  in  its 
infancy,  so  far  as  regards  businesses  of  large  capital, 
and  most  managers  have  no  very  accurate  idea  of  the 
real  outlay  caused  by  the  various  different  products 
of  their  mills  and  shops.  They  know  the  cost  of  each 
article  in  wages  and  materials,  and  some  have  methods 
of  charging  the  time  of  machines  occupied.  But  usually 
the  systems  are  crude  and  leave  a  wide  margin,  a  sort 
of  twilight  zone,  within  which  the  managers  must  use 
their  judgment  in  fixing  prices,  so  as  to  bring  in  the  larg- 
est returns.  That  is,  there  is  too  much  room  left  for  the 
policy  of  discrimination,  and  of  "dumping"  part  of  the 
output  at  prices  that  could  not  yield  living  returns  if 
applied  to  the  business  as  a  whole;  these  practices  that, 
as  we  have  seen,  lead  to  retaliations  and  ultimate  de- 
moralization of  the  market. 

But  there  is  gradually  growing  up  a  more  searching 
type  of  cost-keeping,  dedicated  to  the  proposition  that 


CONSTRUCTIVE   COMPETITION  1 77 

every  outlay  of  the  establishment  shall  be  brought 
home  to  the  goods  turned  out.  One  system  divides  the 
plant,  as  it  were,  into  separate  little  shops,  and  each  of 
these  is  debited  with  rent  for  floor-space,  for  machinery 
used  and  for  the  power  it  takes  from  the  general  system 
of  shafts  and  belt-connections.  Thus  the  work  of  each 
division  of  the  shop  must  pay  its  share  of  rent  of  land, 
interest,  repairs  and  depreciation  of  the  building,  of  the 
working  machines,  and  even  of  the  central  power  plant 
and  the  transmitting  mechanism.  Beside  this  is  added  a 
share  of  the  other  expenses  not  yet  covered,  as  the  ex- 
penses of  general  offices  and  the  whole  cost  of  the  selling 
department.  Some  of  these  items  can  be  quite  definitely 
traced,  others  have  to  be  more  or  less  arbitrarily  divided 
as  seems  best  for  the  guidance  of  the  sales  managers; 
but  the  net  result  is  a  statement  of  unit  costs  for  the 
different  t3^s  of  work  done,  which  can  be  used  as  a 
guide  in  the  making  of  prices  in  a  way  that  exercises 
a  strong  check  on  the  competitive  tactics  just  described. 
A  corporation  following  such  a  system  would  probably 
lose  some  chances  to  make  sales  that  would  bring  in 
immediate  profits,  since  it  would  be  reluctant  ever  to 
make  large  concessions  from  a  regular  price;  but  it 


fjS  THE  CONTROL  OF   TRUSTS 

would  avoid  at  the  same  time  the  reprisals  which  such 
tactics  provoke,  and  would  promote  a  more  tolerant 
and  stable  form  of  competition.  Probably  the  move- 
ment for  more  accurate  cost-accounting  is  partly  the 
result  of  a  feeling  that  men  have  taken  business  from 
their  rivals  at  prices  that  made  it  really  unprofitable, 
and  that  this  would  be  checked  by  more  scientific  book- 
keeping. Certain  it  is  that,  so  far  as  such  a  movement 
gains  ground,  it  must  exert  a  powerful  influence  against 
irresponsible  cutting  of  particular  prices  in  a  way  that 
ends  by  sending  them  all  below  the  level  of  cost. 

Another  thing  that  might  have  a  similar  effect  is 
increased  publicity  of  the  terms  on  which  sales  are  be- 
ing made.  The  business  community  is  often  very  much 
afraid  of  such  publicity,  having  the  idea  that  it  would 
tell  competitors  too  much.  But  to  the  disinterested 
observer  it  seems  that  in  this  matter,  suspicion  bred  of 
ignorance  does  more  to  disturb  fair  dealings  than  knowl- 
edge could  possibly  do.  It  is  not  like  war,  in  which, 
by  cleverly  masked  manoeuvres,  a  weak  army  may  out- 
flank and  defeat  a  superior  force.  The  purpose  of 
competition  is  the  opposite  of  warlike.  The  purpose 
for  which  we,  the  people,  let  this  institution  survive  is 


CONSTRUCTIVE  COMPETITION  1 79 

to  stimulate  efficient  production  at  reasonable  prices. 
In  a  sense  it  is  cooperation,  not  warfare,  and  must 
reasonably  be  viewed  as  such,  even  by  those  who  engage 
in  it. 

It  is  virtually  an  axiom  in  economics  that  in  an  open 
market  there  can  be  but  one  price  for  one  thing  at  one 
time.  So  long  as  prices  are  kept  secret,  it  is  easy  to  sell 
more  cheaply  in  one  district  than  in  another,  but  if 
prices  were  published,  in  a  country  favored  as  we  are 
with  cheap  transportation,  any  very  marked  differ- 
ences would  be  sure  to  be  wiped  out  with  little  delay. 
Hence  the  more  open  the  market  the  less  chance  for  the 
discriminations  in  which,  to  a  large  extent,  cut-throat 
competition  has  its  origin.  The  publishing  of  prices 
cannot  reasonably  be  objected  to  on  any  sound  ground 
of  public  policy. 

The  conditions  under  which  we  may  have  compe- 
tition that  is  tolerant  and  not  destructive,  are  well 
exemplified  in  the  retail  traffic  of  a  great  city.  The 
department  store  is  the  most  economical  distributor 
of  merchandise;  and  yet  for  one  such  store  in  every 
large  city  there  are  scores  of  little  ones  that  sell  goods 
in  the  old  way  and  compete  successfully  with  some 


l8o  THE  CONTROL  OF  TRUSTS 

department  of  the  great  establishment.  One  may 
walk  miles  in  several  directions  from  the  centre  where 
the  large  stores  are  located  and  find,  on  nearly  every 
block,  retailers  selling  some  kind  of  goods  that  is  to  be 
found  in  the  department  store.  They  do  what  may  be 
called  a  traffic  of  convenience;  they  sell  when  people 
have  not  time  to  go  to  the  great  centres.  It  is  un- 
profitable for  a  buyer  to  give  up  an  hour  or  a  half-day 
to  buy  a  few  goods  if  he  can  find  them  at  the  nearest 
street  corner.  This  traffic  of  convenience,  if  we  use 
this  term  comprehensively,  greatly  exceeds  in  volume 
the  traffic  done  by  the  great  department  stores;  and 
this  fact  means  that  it  is  possible  for  an  immense 
amoimt  of  local  competition  to  continue  after  vast 
consolidations  have  taken  place,  and  that  complete 
monopoly  is  a  goal  beyond  the  reach  of  the  most  am- 
bitious schemer. 

Now  it  is  true  that  small  and  strictly  local  factories 
do  not  as  safely  meet  and  survive  the  competition 
with  large  central  ones  as  small  retail  stores  survive  a 
similar  competition.  The  item  of  convenience  counts 
for  much  more  in  the  case  of  the  stores  and  affords  them 
a  more  adequate  protection.    Some  of  them  have  to  go 


CONSTRUCTIVE   COMPETITION  l8l 

to  the  wall,  and  of  the  local  mills  a  larger  proportion 
may  suffer.  Nevertheless  even  in  manufacturing, 
the  advantage  of  proximity  to  customers  counts  for 
something;  and  whenever  it  happens  that  one  of  the 
numerous  local  mills  has  good  machinery  and  runs  on  a 
fairly  large  scale,  it  can  hold  its  place  against  its  great 
rival,  unless  that  rival  takes  an  unfair  advantage  of  it. 
Against  foul  blows  the  small  man  cannot  defend  himself, 
but  under  proper  rules  of  the  ring  he  can  do  so.  So  much 
for  one  condition  in  which  competition  may  survive  with- 
out disaster.  It  is  the  rivalry  of  a  single  great  producer 
and  a  number  of  small  ones  operating  in  local  fields. 

The  other  condition  is  illustrated  by  the  relation  of 
the  department  stores  to  each  other.  They  compete, 
but  not  to  the  extinction  of  profits  and  certainly  not  to 
the  extinction  of  capital.  Why  is  this?  All  of  them 
appeal  to  the  same  public  for  custom.  They  advertise 
in  the  same  papers  and  tell  the  same  stories  as  to  new 
and  attractive  goods  on  opening  days  and  cheap  ones  on 
bargain  days.  Yet  they  are  very  far  from  cutting  one 
another's  throats,  if  we  judge  by  the  vigorous  conamerdal 
life  that  the  owners  of  the  throats  for  the  most  part 
show. 


l82  THE  CONTROL  OF  TRUSTS 

The  situation  reproduces  on  a  great  scale  what  exists 
in  a  village  on  a  smaller  scale.  Two  country  stores  for 
general  merchandise  may  face  each  other  on  the  prin- 
cipal street,  and  yet  live  in  peace.  TJie  secret  is  a  whole- 
some respect  for  the  effect  of  competition  that  cannot  he 
confined  to  any  one  part  of  a  market.  If  the  merchant 
on  the  east  side  of  the  street  tries  to  win  customers  from 
the  shop  on  the  west  side  by  offering  a  special  induce- 
ment, he  must  offer  it  to  all  the  customers  that  he  al- 
ready has.  Prices  have  to  be  practically  uniform  to 
all  who  patronize  one  of  these  stores,  and  they  have  to 
be  publicly  known;  and  these  two  facts  are  the  con- 
ditions of  tolerant  rather  than  ruinous  commercial  ri- 
valry. To  this  may  be  added  the  fact  that  there  is  no 
prospect  of  possible  monopoly  gains  to  induce  any  one 
dealer  to  bear  the  losses  of  the  cut-throat  competition 
by  which  alone  a  monopoly  might  be  established,  and 
the  further  fact  that  the  factor's  agreement  is  obvi- 
ously out  of  the  question  in  retail  trade. 

If  the  identical  conditions  which  exist  naturally  in 
this  instance  can  be  reproduced  by  law  in  the  case  of 
the  corporations  that  will  survive  when  the  trusts  shall 
have  been  divided,  it  is  possible  that  here  also  a  tol- 


CONSTRUCTIVE  COMPETITION  1 83 

erant  and  normal  competition  may,  in  general,  be  the 
rule,  and  ruinous  competition  the  exception.  The  one- 
price  rule,  and  publicity  of  prices  are  obvious  means  to 
the  gaining  of  this  end. 

A  more  difficult  problem  is  that  of  directly  and  defi- 
nitely putting  beyond  the  reach  of  any  competitor 
the  prize  of  complete  dominion  over  his  industry.  As 
has  been  seen,  we  cannot  do  this  by  merely  forbidding 
combination.  Our  whole  experience  with  trusts  is  a 
record  of  the  futility  of  this  course,  and  of  the  need  of 
limiting  the  size  of  combinations,  regardless  of  the  form 
they  take.  But  in  doing  this,  what  shall  we  set  as  the 
limit,  and  by  what  test  of  size  shall  we  know  a  monop- 
oly? It  is  easy  to  suggest  various  simple,  rule-of-thumb 
standards,  but  it  is  to  be  feared  that  in  such  a  matter 
as  this,  simplicity  means  crudeness,  and  that  we  must 
learn  by  experience  the  different  needs  of  different 
industries,  and  follow  a  policy  that  can  adapt  itself 
flexibly  to  our  growing  knowledge. 

It  is  clear  enough  that  no  simple  rule  can  be  made  to 
fit  all  cases.  Shall  we  place  the  limit  at  a  capital  of  a 
hundred  millions  of  dollars,  or  of  five  hundred  millions, 
or  shall  we  judge  by  the  share  of  the  nation's  output  of 


184  THE  CONTROL  OF  TRUSTS 

each  commodity  that  has  come  under  one  control,  and 
draw  the  line  at  twenty-five  per  cent,  or  fifty  per  cent, 
or  seventy-five  per  cent,  of  the  total  output?  Obviously 
the  absolute  size  of  capital  is  meaningless.  A  paltry 
few  millions  of  dollars,  which  would  be  no  more  than 
was  needed  to  give  an  independent  a  fair  chance  for  his 
hf e  in  the  steel  business,  would  be  enough  to  monopolize 
completely  a  dozen  minor  industries. 

The  other  standard  is  more  logical,  but  still  far  from 
being  completely  satisfactory.  For  the  market  of  some 
goods  is  nation-wide,  while  that  of  others  is  more 
limited,  and  a  small  capital,  measured  relatively  to  the 
whole  amount  in  the  industry,  might  well  hold  some 
limited  locality  in  a  grip  practically  as  firm  as  if  the 
field  contained  no  others.  A  trust  in  brick  or  building- 
stone  would  hardly  need  to  be  nation-wide  to  tyrannize 
over  the  would-be  builders  of  houses  in  a  given  town, 
while  a  barbers'  trust  in  a  single  town  might  do  away 
with  all  active  competition  though  it  included  not  one 
ten  thousandth  of  the  nation's  tonsorial  enterprise. 

The  key  to  the  situation  is  the  position  of  the  con- 
sumers, rather  than  that  of  the  producers.  Has  every 
consumer  a  choice  of  efficient  and  independent  producers 


CONSTRUCTIVE  COMPETITION  185 

to  buy  from?  If  so,  there  is  no  monopoly,  even  if  one 
combination  should  control  three  quarters  of  the  out- 
put. The  solid  reason  back  of  the  fear  shown  when 
combinations  begin  to  absorb  a  great  part  of  their  field 
lies  in  the  fact  that  the  competitors  who  are  left  are  likely 
to  operate,  each  in  a  narrow  local  market,  leaving  the 
trust  a  considerable  domain  in  practically  undisturbed 
possession. 

Where  this  has  taken  place,  the  reliance  of  these  con- 
sumers must  be  on  some  form  of  potential  competition, 
either  of  producers  who  are  serving  other  markets  but 
who  are  within  reaching  distance,  or  else  of  producers 
not  yet  in  the  field  and  of  mills  not  yet  built.  The 
force  of  this  surviving  competition  would  be  a  thing 
very  difficult  to  determine. 

If  we  are  about  to  attempt  it,  it  seems  clear  that  we 
have  here,  if  ever,  a  task  for  an  administrative  commis- 
sion, acting  under  a  law  that  should  state  in  general 
terms  the  result  to  be  secured: — sufficient  competition 
to  protect  the  pubhc  interest.  The  things  such  a  com- 
mission would  need  to  consider  are  many  and  varied. 
The  amount  of  capital  needed  to  enter  the  business 
effectively  is  important  as  a  measure  of  the  difficulty 


1 86  THE  CONTROL  OF  TRUSTS 

the  potential  competitor  would  meet  in  entering  the 
field.  The  relation  of  transportation  costs  to  the  value 
of  the  goods  would  determine  the  distance  at  which  com- 
petition could  be  effective.  In  a  business  requiring  small 
capital  or  making  goods  of  such  high  value  that  small 
producers  can  seek  wide  markets,  comparatively  little 
active  competition  is  needed.  With  bulky  goods,  the 
industries  usually  concentrate  in  the  centres  of  greatest 
natural  advantage,  and  each  centre  dominates  the  mar- 
kets nearest  to  it.  In  such  cases  there  should  be  one 
efficient  independent  in  each  centre,  or  at  least  near 
enough  to  it  to  be  in  touch  with  the  market  and  able 
to  take  advantage  of  any  opening  for  traffic  that  might 
be  offered. 


CHAPTER  VIII 

CONCLUSION  AND   SUMMARY 

Results  we  are  striving  to  accomplish — Control  of  transportation  a 
prerequisite — Advantages  of  a  commission  in  helping  to  solve  a 
growing  problem — No  holding  companies — Corporate  publicity — 
stocks  without  par  value  as  an  aid — ^Laws  against  predatory  com- 
petition— The  one-price  system — Patent  reform — The  limiting 
of  size — Objections  must  be  met  by  the  test  of  experience — Some 
industries  will  doubtless  demand  the  regulating  of  prices — Ob- 
jections to  restricting  the  power  to  cut  prices — Competition  as 
destructive  individual  warfare  vs.  competition  as  a  constructive 
social  institution — The  latter  our  goal. 

If  we  can  carry  out  all  the  changes  and  reforms  pro- 
posed in  the  preceding  pages,  we  shall  at  least  be  on  the 
way  to  the  ultimate  solution  of  our  problem,  and  if 
these  measures  prove  successful,  the  problem  is  as  good 
as  solved.  We  shall  have  reestablished  a  measure  of 
active  competition  wherever  that  is  in  danger  of  disap- 
pearing, and  we  shall  have  created  the  conditions  that 
are  necessary  to  enable  it  to  continue  without  degen- 
erating into  mere  cut-throat  warfare.  We  may  not 
have  been  able  to  prevent  agreements,  but  we  shall 

have  robbed  them  of  their  power  for  oppression  by  se- 

187 


/ 


1 88  THE  CONTROL  OF  TRUSTS 

curing  the  right  of  any  man  to  enter  any  business  whose 
profits  may  attract  him,  assured  of  a  ''square  deal/* 
and  knowing  that  if  he  can  give  as  good  value  as  his 
rivals,  he  will  be  as  well  off  as  they  are,  regardless  of 
size.  We  shall  have  big  plants,  so  far  as  bigness  is  es- 
sential to  eflSiciency,  but  we  shall  not  be  burdened  with 
the  swollen  and  unnatural  growth  that  comes  from  try- 
ing to  absorb  all  possible  competitors  and  that  often 
results  in  burdening  the  merger  with  inefficient  plants 
which  the  rest  must  carry  as  a  dead  weight.  Such  size 
defeats  the  ends  of  efficiency  instead  of  promoting 
them.  Above  all,  we  shall  have  preserved  the  key  that 
has  opened  to  us  the  gates  of  progress  throughout  the 
century  just  past,  we  shall  have  kept  the  competitive 
incentive  to  efficiency  that  we  know  of  old  experience, 
and  shall  not  be  forced  into  attempting  to  contrive  a 
substitute. 

It  now  remains  to  gather  up  the  various  proposals 
here  advocated  and  to  present  the  result  as  a  connected 
program  of  action.  It  is  not  a  simple  program,  for  our 
conditions  are  complex  and  no  simple  remedy  is  ade- 
quate to  meet  them.  It  is  enough  for  the  purpose  of 
this  book  to  state  merely  the  things  that  must  be  ac- 


CONCLUSION  AND   SUMMARY  1 89 

complished,  without  attempting  to  be  dogmatic  as  to 
the  legal  methods  by  which  they  should  be  brought 
about.  The  economist  must  treat  such  matters  with 
great  caution,  save  when  they  are  so  clear  that  even  the 
layman  cannot  greatly  err  therein. 

We  must  assume,  in  the  first  place,  that  our  control 
over  transportation  shall  be  so  developed  as  to  prevent 
all  favoritism  of  the  kind  that  leads,  or  may  lead,  to 
giving  the  favored  shipper  a  monopoly.  The  two  chief 
causes  of  such  discriminations  are,  first,  railroad  compe- 
tition, and  second,  communities  of  interest  between 
carriers  and  shippers.  The  first  source  of  trouble  could 
be  largely  avoided  through  legalized  pooling,  while  the 
second  was  forbidden  in  1906  by  a  law  which  seems  to 
have  been  rendered  ineffective  by  judicial  construction, 
and  which  might  be  unconstitutional  if  literally  in- 
terpreted. This  problem  presents  very  stubborn  prac- 
tical difficulties,  and  the  complete  solution  of  it  is  not 
clearly  in  sight.  One  thing  that  would  greatly  con- 
tribute to  the  object  in  view  is  preserving  competition 
on  our  water  routes,  and  to  this  end  guaranteeing  to 
independent  carriers  adequate  terminal  facilities  and 
fair  and  equal  treatment  by  the  railroads  from  which 


190  THE  CONTROL  OF  TRUSTS 

they  must  draw  their  traffic.  With  these  needs  recog- 
nized and  provided  for,  the  direct  attack  upon  the  trust 
problem  proper  may  begin. 

Next  a  question  of  ways  and  means  presents  itself. 
It  is  clear  enough  that  in  regulating  trusts  there  are 
things  to  be  done  and  needs  to  be  met  that  cannot  be 
accurately  foreseen  and  provided  for  by  detailed  and 
self-acting  statutes.  Our  methods  must  be  so  far  as 
possible  elastic,  adaptable  as  to  ways  and  means  though 
inflexible  in  underlying  purposes;  and  yet  these  laws 
must  be  applied  definitely  and  forcibly.  We  cannot 
afford  to  have  any  large  section  of  the  business  world 
in  doubt  whether  they  have  broken  the  laws  or  not, 
and  we  cannot  let  the  laws  become  a  dead  letter  through 
vagueness.  In  this  view  it  is  clear  that  an  adminis- 
trative commission  can  render  invaluable  service. 
After  commanding  everything  we  can  definitely  com- 
mand, and  forbidding  everything  we  can  definitely  for- 
bid, we  may  cover  the  rest  of  the  field  in  general  terms 
and  leave  the  commission  to  enforce  them,  as  the  Inter- 
state Commerce  Commission  now  enforces  the  general 
terms  of  the  Interstate  Commerce  Act.  The  need  of 
such  a  body  is  probably  the  one  thing  on  which  the 


CONCLUSION  AND   SUMMARY  191 

various  plans  now  before  the  people  are  most  generally 
agreed.        , 

In  attacking  the  first  great  division  of  the  trust  prob- 
lem, that  of  internal  organization,  there  are  two  chief 
things  to  be  accomplished.  The  investor  must  be  made 
reasonably  secure  in  his  property,  and  the  property 
should  be  managed  genuinely  in  the  interests  of  the 
majority  of  the  investors,  so  long  as  they  do  not  exploit 
the  minority.  In  securing  the  latter  result,  the  greatest 
single  step  will  probably  be  the  aboHtion  of  the  holding 
company,  which  might  conceivably  be  brought  about 
by  a  federal  rule  limiting  the  right  of  interstate  cor- 
porations to  exercise  voting  power  on  their  holdings 
of  the  stock  of  other  corporations.  As  to  the  former 
task,  the  one  great  need  is  effective  publicity. 

In  securing  this  effective  pubHcity,  the  present 
writers  believe  that  help  might  be  rendered  by  the 
issuing  of  stock  without  the  more  or  less  haphazard 
measuring-unit  known  as  "par  value."  Everyone  of 
intelligence  knows  that  the  dollar-sign  on  a  share  of 
stock  is  meaningless  under  present  conditions,  and  that 
if  he  is  at  all  guided  by  it,  rather  than  by  independent 
knowledge,  in  judging  of  the  value  of  the  property,  he 


192  THE  CONTROL  OF  TRUSTS 

is  to  that  extent  misguided.  Yet  many  have  little  else 
to  depend  on.  With  this  fictitious  reliance  taken  away, 
the  result  should  be  an  increasing  demand  for  real  in- 
formation. Such  a  system  would  be  very  like  the 
situation  created  by  a  law  against  false  labelling  of 
goods.  It  would  not  prevent  securities  from  being 
issued  on  any  terms  desired,  but  it  might  well  have  a 
wholesome  influence  in  purging  the  transaction  of  false 
pretence  and  the  suspicion  of  it.  This  measure,  how- 
ever, has  encountered  objections,  and  is  not  a  necessary 
means  to  the  end  we  are  seeking.  The  essential  thing  is 
the  effective  publicity  which  non-par  stock  might  help 
to  secure. 

The  second  great  task  is  the  preventing  of  predatory 
competition.  The  factor's  agreement  and  local  price- 
cutting  must  go,  and  the  law  should  forbid  all  acts  of 
similar  purpose  and  effect  in  such  general  terms  that 
none  could  escape,  while  the  enforcement  of  the  law 
could  well  be  entrusted  to  an  "Interstate  Trade  Com- 
mission" or  similar  body.  Preferably  the  law  should 
provide  for  the  selling  of  goods  at  one  price  F.  O.  B. 
at  the  factory,  (with  such  exceptions  as  have  been 
mentioned),  and  for  the  publishing  of  prices.    The  lat- 


CONCLUSION  AND   SUMMARY  1 93 

ter  measures  would  be  important  in  preventing  the  club- 
bing of  small  competitors  by  large  ones,  but  still  more 
so  in  the  difficult  constructive  task  of  furthering  a 
healthy  and  tolerant  t3^e  of  competition  between  the 
large  corporations  themselves.  In  the  recording  of 
prices  and  the  administering  of  the  details  of  the  one- 
price  system  the  commission  would  prove  invaluable. 
Incidentally  to  this,  we  may  need  to  prevent  the  mis- 
use of  patents,  chief  among  which  may  be  mentioned 
the  buying  up  of  patents  to  keep  them  out  of  use,  and 
the  extension  of  the  patent  monopoly  to  non-patented 
articles  by  a  contract  similar  to  the  factor's  agreement. 
In  a  recent  decision  of  the  Supreme  Court,  not  made, 
however,  by  the  full  court,  and  concurred  in  by  only  four 
justices,  it  was  held  that  the  seller  of  a  patented  mimeo- 
graph could  bind  the  purchaser  to  use  only  his  ink  in 
the  machine,  though  the  ink  was  not  patented.  With- 
out presuming  to  pass  on  the  merits  of  this  case  (which 
may  be  reheard  before  a  full  bench),  one  can  easily  see 
that  this  form  of  contract  might,  if  carried  far  enough, 
restrain  competition  unduly,  and  that  we  should  do 
well  to  ascertain  whether  this  is  a  real  danger.  Some 
countries  forbid  such  contracts.    The  keeping  of  patents 


194  THE  CONTROL  OF  TRUSTS 

out  of  use  may  be  met  by  compelling  the  holders  of 
such  a  patent  to  let  anyone  use  it  who  wishes,  on  pay- 
ment of  a  royalty  fixed  by  a  court.  This  would  virtu- 
ally apply  the  right  of  eminent  domain  to  patents  out- 
standing and  unused,  and  is  provided  for  by  the  laws 
of  various  foreign  countries.  As  a  trust  regulation  it 
would  be  helpful,  though  probably  of  minor  importance. 
The  third  great  division  of  our  task  is  to  prevent  the 
growth  of  combinations  of  such  size  that  competition 
is  impossible,  and  to  break  them  up  when  they  have  so 
grown.  The  brealdng  up  of  existing  corporations  may 
be  expected  to  go  on  under  the  Sherman  Lav/,  with  the 
help,  perhaps,  of  an  administrative  commission  in  super- 
vising reorganizations  and  in  watching  the  results  that 
follow.  In  preventing  the  growth  of  combinations  so 
big  as  to  dominate  the  field,  we  shall  probably  follow 
the  method  of  issuing  federal  charters,  or  licenses,  to 
corporations  of  large  size  wishing  to  do  interstate  busi- 
ness, and  these  licenses  will  be  withheld  or  withdrawn 
from  any  concern  so  great  as  to  have  a  monopoly 
power.  To  make  this  effective,  we  shall  have  to  pre- 
vent these  corporations  from  combining,  either  through 
holding  each  other's  voting  stock  or  through  com- 


CONCLUSION  AND   SUMMARY  1 95 

munities  of  interest,  just  as  we  shall  have  to  prevent 
these  measures  from  being  used  to  cement  the  pieces  of 
trusts  that  have  been  dissolved  under  the  Sherman  Act. 
We  may  find  it  necessary  to  limit  the  rights  of  individu- 
als to  vote  stock  in  competing  companies,  and  to  prevent 
the  choosing  of  directors  who  have  substantial  interests 
in  outside  and  presumably  competing  enterprises. 

Here  again  is  work  for  a  commission.  No  fixed  rule 
of  size  can  be  framed,  for  the  present  at  least,  which 
would  work  well.  We  cannot  pass  the  country's  in- 
dustries through  a  legal  sieve  with  a  mesh  of  just  the 
right  size  to  stop  all  monopolies  and  let  all  others  pass. 
The  law  might  take  some  notice  of  size.  Any  corpora- 
tion controlling  over  half  its  field,  for  instance,  may  be 
required,  as  a  condition  of  getting  and  keeping  its  H- 
cense,  to  show  affirmatively  that  there  is  enough  com- 
petition remaining  to  safeguard  the  interests  of  the 
public.  All  smaller  corporations  should  then  be  as- 
sumed to  be  free  from  monopoly  unless  some  special 
complaint  were  brought  against  them.  Such  a  rule 
would  simpHfy  the  work  of  granting  licenses,  while  it 
could  still  be  adapted  to  the  needs  of  particular  cases, 
however  varied. 


196  THE  CONTROL  OF  TRUSTS 

There  are  two  serious  objections  brought  against  any 
scheme  that  involves  breaking  up  combinations  or 
limiting  their  size,  and  these  must  be  recognized  and 
met.  One  says  that  we  cannot  keep  men  apart  if  they 
are  determined  to  come  together,  nor  compel  them  to 
compete  against  their  will.  The  answer  to  this,  as  we 
have  already  seen,  lies  in  the  weaknesses  of  all  those  in- 
formal understandings  and  agreements  which  lie  out- 
side the  law.  It  takes  more  than  these  to  make  a  true 
monopoly.  Another  objection  claims  that  in  breaking 
up  the  trusts  we  are,  like  the  laborers  of  the  time  of  the 
industrial  revolution,  smashing  the  engines  of  progress 
and  efficiency.  But  does  not  this  rest  on  assumption 
rather  than  proof?  It  has  not  been  proved  that  we 
cannot  have  size  enough  for  the  greatest  possible 
efficiency,  and  still  stop  short  of  monopoly.  Would  the 
Carnegie  Company  have  suffered  seriously  in  its  in- 
dustrial efficiency  if  it  had  never  joined  the  "Steel 
Trust"?  Much  is  made  of  our  need  of  the  trust  to 
maintain  ourselves  in  foreign  markets,  but  it  should  not 
be  forgotten  that  some  of  our  most  striking  conquests 
were  made  before  competition  had  been  relegated  to  the 
background,  and  that  some  authorities  assert  that  we 


CONCLUSION  AND   SUMMARY  1 97 

have  made  much  less  satisfactory  progress  since  that 
time. 

These  objections  can  neither  be  proved  nor  abso- 
lutely disproved  with  the  Hmited  knowledge  we  now 
have.  Experience  alone  can  give  a  final  answer.  The 
knowledge  gained  in  a  few  years  by  a  commission 
of  the  kind  suggested  would  be  worth  more  than  vol- 
umes of  mere  assertions  and  contradictions.  When,  in 
any  business,  it  shall  be  found  that,  in  spite  of  every- 
thing, competition  dies,  or  that  some  of  our  industries 
are  condemned  to  inefficiency,  it  will  then  be  time  to 
change  our  policy,  to  recognize  monopoly  in  these  cases 
as  a  necessary  fact  and  to  take  the  logical  next  step  of 
regulating  prices. 

We  shall  probably  find  that  this  is  true  in  some  in- 
dustries and  not  in  others.  In  some  fields  the  savings 
of  large  scale  production  might  conceivably  go  so  far 
that,  to  get  them  all,  we  must  have  combination  to  the 
point  of  monopoly.  It  is  thinkable  that  this  condition 
might  develop  in  some  of  the  great  metal-working 
industries,  and,  if  so,  those  industries  would  be  shown 
to  be  truly  natural  monopohes  and  have  to  be  treated 
as  pubUc  service  businesses,  and  regulated  as  to  price. 


iqS  the  control  of  trusts 

If  in  the  future  this  shall  prove  to  be  the  case,  then  we 
may  adopt  this  policy  for  those  businesses  only,  and  for 
the  others  keep  on  with  our  policy  of  maintaining 
competition.  The  thing  we  shall  not  do,  if  we  are  sane, 
is  to  abandon  the  effort  to  maintain  competition  in  the 
whole  field  of  large-scale  enterprise  merely  because  in  a 
few  cases  it  proves  to  be  unsuccessful. 

The  central  feature  of  the  program  here  outlined, 
and  the  feature  most  likely  to  be  looked  on  as  radical 
and  visionary,  is  the  control  of  methods  of  marketing, 
and  that  enforced  selling  at  one  price  publicly  adver- 
tised. But  however  great  the  disagreement  as  to  the 
exact  method  that  will  bring  the  best  results,  there  can 
be  no  doubt  among  those  who  have  faced  the  problem 
squarely,  that  the  thing  this  section  aims  to  do  is  a 
thing  that  must  be  done,  in  one  way  or  another,  if 
competition  is  to  be  preserved.  Predatory  price  cut- 
ting through  discriminations  must  be  stopped,  and  the 
driving  of  prices  below  cost  must  be  made  difficult,  if 
our  effort  to  restore  competition  is  to  have  solid  and 
stable  results.  The  statute  books  of  our  states  bear 
witness  to  the  fact  that  the  people  feel  this  to  be  the 
truth  and  have  begim  to  act  upon  it. 


CONCLUSION  AND   SUMMARY  199 

But  as  yet  we  are  far  from  unanimous.  Within  the 
past  year  a  federal  court  issued  a  decree  which  forbade 
the  members  of  a  combination  from  "seeking  to  injure 
the  trade  of  rival  manufacturers  by  offering  .  .  . 
prices  ...  to  the  customers  of  such  rival  manufac- 
turers more  favorable  than  they  make  to  their  estab- 
lished trade,  though  nothing  in  the  decree  is  to  be  taken 
in  any  respect  as  a  restraint  upon  fair,  free  and  open 
competition."  No  better  statement  could  well  be  made 
of  the  spirit  of  rational  competition;  and  yet  comment 
has  appeared  to  the  effect  that  this  decree  is  self- 
contradictory,  because  it  professes  to  maintain  com- 
petition while  prohibiting  "the  only  effective  method" 
of  carrying  it  on. 

The  opinion  expressed  in  this  criticism  is  interesting 
as  being  the  exact  opposite  of  that  to  which  this  book 
is  dedicated.  The  making  of  extra  low  prices  to  a  rivaFs 
customers  is  a  very  effective  method  of  getting  those 
customers  away  from  him,  and  if  that  be  the  one  pur- 
pose of  competition,  then  it  may  have  been  interfered 
with  by  the  decision  quoted  above.  But  this  kind  of 
competition  is  imworthy  of  the  name,  for  it  means 
merely  a  short  spurt  of  low  prices,  followed  by  mo- 


200  THE  CONTROL  OF  TRUSTS 

nopoly  and  permanent  high  prices.  That  is  not  our 
purpose,  the  people's  purpose,  in  making  the  rules  un- 
der which  we  allow  competition  to  be  carried  on.,  If 
the  object  of  competition  be  to  secure  the  survival  of 
those  most  fit  to  produce  goods  or  to  render  services, 
then  the  case  is  exactly  reversed;  and  this  latter  is  the 
true  view.  To  put  the  other  man  out  of  business,  re- 
gardless of  the  effects  on  society — this  is  not,  and  never 
has  been,  the  whole  object  of  competition  since  cave- 
men stopped  exploiting  their  fellows  with  stones  and 
clubs.  Since  that  time  we  have  never  had  perfectly 
"free"  competition  in  the  sense  which  the  above- 
mentioned  criticism  implies. 

In  our  worship  of  the  survival  of  the  fit  under  free 
natural  selection  we  are  sometimes  in  danger  of  forget- 
ting that  the  conditions  of  the  struggle  fix  the  kind  of 
fitness  that  shall  come  out  of  it;  that  survival  in  the  prize 
ring  means  fitness  for  pugilism;  not  for  bricklaying  nor 
philanthropy;  that  survival  in  predatory  competition 
is  likely  to  mean  something  else  than  fitness  for  good 
and  efficient  production;  and  that  only  from  a  strife 
with  the  right  kind  of  rules  can  the  right  kind  of  fitness 
emerge.   Competition  and  its  purpose  are  not  individual 


CONCLUSION  AND   SUMMARY  20I 

but  social.  It  is  a  game  played  under  rules  fixed  by  the 
state  to  the  end  that,  so  far  as  possible,  the  prize  of 
victory  shall  be  earned,  not  by  trickery  or  mere  self- 
seeking  adroitness,  but  by  value  rendered.  It  is  not 
the  mere  play  of  unrestrained  self-interest;  it  is  a  method 
of  harnessing  the  wild  beast  of  self-interest  to  serve  the 
common  good — a  thing  of  ideals  and  not  of  sordidness. 
It  is  not  a  natural  state,  but  like  any  other  form  of 
liberty,  it  is  a  social  achievement,  and  eternal  vigilance 
is  the  price  of  it. 

At  present,  our  ideals  are  ahead  of  our  practice,  the 
rules  of  the  game  need  revising,  the  harness  needs 
strengthening.  Just  as  English  football  became  a  differ- 
ent game  when  played  by  Americans  who  were  coached 
to  make  the  most  of  each  technicality  in  the  rules,  so 
the  game  of  competition  has  changed  in  the  modern 
environment,  and  the  change  has  led  some  to  think 
that  competition  itself  is  doomed.  But  it  is  much  too 
soon  to  reach  such  a  conclusion.  The  large  probability 
is  that  the  old  institution  needs  merely  to  adapt  itself 
to  the  new  conditions.  Institutions  never  maintain 
themselves  without  constant  human  endeavor.  Surely 
it  is  the  part  of  wisdom  to  exhaust  every  effort  to  main- 
tain this  one,  before  we  let  it  go. 


202  THE  CONTROL  OF  TRUSTS 

The  laws  are  already  being  developed  that  will  help 
to  strengthen  competition  against  its  new  dangers, 
and  we  may  welcome  the  opportunity  to  have  some  part 
in  that  development.  And  the  time  should  not  be  too 
far  distant  when  the  business  world  at  large  may  catch 
the  constructive  spirit  which  these  laws  but  partially 
embody,  when  the  laws  will  become  practically  self- 
enforcing,  because  business  men  shall  recognize  the 
duty  of  fair  competition  and  accept  as  a  public  trust 
the  power  to  maintain  it  in  the  field  where  vast  enter- 
prises rule.  If  so,  we  shall  see  the  new  competition 
firmly  established,  as  the  means  of  securing  to  laboring 
humanity  a  maximum  of  power  and  justice  with  a 
minimum  of  restraint. 


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